Inflation was the main topic of the second quarter of 2021 report. It discussed whether rising prices reflected 'reopening' inflation, caused by a rebound in commodity prices and the unwinding of pandemic-era distortions such as supply bottlenecks, or the start of a period of structurally higher inflation. Inflation was 5.00% in the US, 1.90% in the euro area, 2.30% in Germany, 2.10% in the UK and 0.60% in Switzerland. Policy rates were 0.25% in the US, 0.10% in the UK and -0.75% in Switzerland.
The report listed three causes of the low-inflation era of the previous three decades: an expansion of global supply capacity, including China's integration into world trade; the independence of central banks and their focus on inflation targets; and structural changes in wage and price setting. It said some of these influences were weakening, citing slower expansion of supply, a peak in globalisation, demographic change and the large build-up of private savings, and noted that the US Federal Reserve had moved to an average inflation target. It also listed factors working in the opposite direction, including flexible labour markets and the acceleration of digital technologies.
Equity markets rose. The MSCI World Equity Index gained 6.93% over the quarter, US equities 8.17%, Swiss equities 8.10%, French equities 7.26%, UK equities 4.82% and euro area equities 3.70%, while Japanese equities fell 1.33%. The euro rose 1.08% against the US dollar to 1.19 and sterling rose 0.35% to 1.38, while the dollar fell 1.96% against the Swiss franc to 0.92. Gold rose 3.68% to USD 1,769.80 and WTI crude rose 23.88% to USD 73.77.
The report cited an estimate that ten years of e-commerce adoption were compressed into three months in 2020, and an estimate of global GDP growth of 6% in 2021. Questions it raised for the rest of 2021 included the tapering of government support, the shape of the post-pandemic economy and the direction of policy.
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