A return of inflation in 2021 would be very bad news – Natixis

FXStreet reports that a return of inflation in 2021, which is likely given the decline in labour productivity due to the new health rules, would be very bad news, according to Natixis.

"Companies will be in trouble (increased debt, declining earnings), and they will therefore be unable to increase nominal wages. As a result of inflation, this will lead to a decline in real wages, and in purchasing power and household demand."

"The ECB would be unable to maintain a large-scale bond purchase programme, especially after the ruling of the German Federal Constitutional Court; the peripheral countries' yield spreads would then widen and there would be a threat of a debt crisis in these countries."

"The upturn in expected inflation, which is currently very low, would lead to a rise in long-term interest rates, leading to a slowdown in the recovery in corporate investment and in housing purchases.

"The rise in unit production costs will affect industry, retail, restaurants and culture, but also construction, leading to a rise in construction prices and in new housing prices, which also affects purchasing power."