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Brace For Inflation As Morgan Stanley Declares End Of Lowflation

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Goodbye lowflation. Hello reflation.

Having begun the year warning a battle against excessively sluggish inflation would be the dominant economic theme for financial markets in 2015, Morgan Stanley economists led by Elga Bartsch now scent victory for central banks.

“The stage is set for global reflation,” said Bartsch and colleagues in a report to clients on Monday. “Inflation is about to or is already reflating in a large portion of the global economy.”

With 70 percent of the world economy now suffering from lowflation or a sustained period of weak price pressures, the Morgan Stanley economists forecast the average for such economies will rebound to 1 percent by the end of this year and 1.9 percent in 2016 from 0.4 percent today.

That will ease the strain for central banks with Bartsch predicting only those of Japan, the U.K., China and South Korea will be undershooting their inflation targets by a wide margin by the end of next year. That compares with 15 economies today including the U.S. and euro area.

As for the whole world, inflation will bottom at around 2.9 percent in the current quarter before accelerating to 3.4 percent next year, led by a jump in rich nations to 1.7 percent from 0.3 percent.

Enough Surprise

Such gains may still be enough to surprise financial markets with Morgan Stanley saying they are currently pricing in a weaker profile for prices. The good news is although there still may be the odd market scare as with 2013’s taper tantrum, the bank’s strategists still say stocks can benefit in the new environment with banks among those most likely to profit.

Buy bank shares??

I'm waiting for inflation to increase before spending my money...

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