U.S. inflation may reach 3% or 4% by the middle of next year

Investors continue speculation about the inflation rate growth. The positive outlooks for consumer prices prompted lots of them to believe that it won’t have a significant effect on the coronavirus’s economic recovery.

However, some strategists think that traders are underestimating the influence of good retail sales and consumer spending data against rising inflation.

David Roche, president of investment firm Independent Strategy, believes that the U.S. inflation rate could rise much further from the 2.6% level it stood in March from a year ago.

He stated that in his opinion, inflation would probably increase by 3 or 4% by the middle of 2021. That is completely inconsistent with U.S. 10-year bond yields standing at 1.6%. The yield could easily double. If that happens, you’ll come to the crunch point that financial markets are going to experience.

Roche also added that there are several reasons that can cause the prices to rise. The most significant is that when the pandemic ends, there will be huge demand as consumers spend the excess savings which they have accumulated during the lockdowns.

Which direction will inflation take?

Analysts and investors alike speculate about the inflation’s course. Currently, rising inflation is one of the biggest concerns that the market is facing, considering that high prices could affect asset values, along with corporate margins and significantly limit consumer buying power.

The Federal Reserve is also keeping an eye on the inflation rate. However, it believes that a current rise is transitory. According to the latest data, the consumer price index soared by 0.6% in March from the previous month. It jumped by 2.6% from a year ago. The Fed officials declared that they have some tools, like increasing interest rates, to fight inflation if it becomes a problem.

Analysts see a rise in inflation as inevitable with the reopening of the global economy after the coronavirus pandemic.