Will inflation surge after the pandemic?

Get an economist’s take on the hot-button topic and its impact on real estate markets

April 08, 2021

The path inflation is set to take after the COVID-19 pandemic has become one of the hottest topics in the investment world.

The pandemic has caused inflation across G7 countries to fall sharply, from 1.7 percent in January 2020 to just 0.6 percent at the start of 2021. Now, as recoveries start to take shape, inflation is expected to recover, too.

But by how much? The answer will ultimately drive decisions over what assets are best to buy, sell or hold.

Inflation can erode returns from income streams, asset values, or currency impacts for cross-border investors. The flip side of higher inflation is usually higher interest rates and therefore increased debt costs.

Read on to find out what David Rea, chief economist for JLL in EMEA, believes is on the cards for real estate markets and the true risk of inflation.

David, what would surging inflation look like?

A rebound to 2 percent would be a big shift compared to today – but would be in line with the rate that most central banks are targeting. For inflation to escalate, it would have to jump to at least 3 percent, and stay there for several years.

If inflation did surge, bonds and fixed income assets and securities would bear the brunt of the impact, with their income streams eroded.

Do you think we’re going to see high inflation after the pandemic?

There are many arguments in favour of surging inflation, but most are weak. A rise in commodity prices is the strongest argument, and will certainly increase prices and push up inflation, though we suspect the effect will be short lived.

Inflation is likely to rise towards 3 percent and remain elevated for much of next year before coming sharply back down, as base effects fall out of the picture. The net effect will be that over the pandemic and post-pandemic period, inflation should average around, or slightly below, 2 percent.


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Inflation returning with a vengeance would require a rate of above 3 percent for several years. But a one-year rate of 3 percent would be a blip and have few real effects.

What about the release of pent up demand? That’s surely going to boost spending.

It would, but to a smaller extent than the vast levels of accrued savings are leading many to believe. Even if it does, it is unlikely to be inflationary due to the large amount of spare capacity, nor would it have a lasting impact.

What will you be watching for signs of inflation?

The current upward movement in commodity prices is something to watch. That may have a more significant effect on construction costs and activity. It’s certainly something for the real estate industry to watch in the coming months.

But overall, you think we’re in the clear?

For commercial real estate as a whole, it’s a fairly benign scenario. A year of 3 percent inflation, then a drop back to normal levels, is unlikely to have any serious impact on capital values or on rents.

The ultimate determinant of the path of inflation will be the balance between the growth of the supply and demand sides of the economy. Among analysts and most central banks, the view is that there’s enough spare capacity on the supply side to absorb the expected rebound in demand, which will keep inflation in check.

However, this is the area of greatest uncertainty and it will only become clear once the recovery is underway.

Thanks for your time, David!

Contact David Rea

EMEA chief economist

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