Global Economic Inflation Volatility Analysis

This document is a research report that examines the potential shift in the global economy towards a regime characterized by structurally higher inflation volatility. It outlines how frequent negative supply shocks may challenge traditional portfolio diversification strategies and increase risk premia. The report discusses various factors contributing to this volatility, including geopolitical tensions, climate change, and the impact of future pandemics. It highlights the difficulties central banks may face in managing inflation targets, particularly as they may need to respond more frequently to inflation rising above target levels. The analysis also notes that the historical context of inflation regimes provides insight into current trends, emphasizing that the global economy is likely to experience a higher mean of inflation, with volatility being a significant concern. The report concludes by considering the implications of these changes for investors and policymakers, particularly in navigating the complexities of monetary policy in an increasingly uncertain environment.