While it’s very early to say the rise in inflation has passed, there are signs that the fastest part of the rebound in inflation might soon be over.
Raw material prices have pulled back from the highs of early May and supply chains for intermediate goods like semiconductors may be starting to improve.
If these early signs continue to signal a deceleration of the upsurge in price pressures, market worries over inflation could begin to lessen.
Global prices have been inflating at a rapid pace, lifting inflation-sensitive sectors of the stock market (ex. Energy is the world’s best performing sector in 2021) and driving bond yields higher around the world (ex. the German 15-year bond yield rose above zero for the first time in two years). Google searches for news on inflation have soared. In the chart below, the upward trending line indicates that the “Inflation” search term's relative popularity is increasing—not necessarily that the total number of searches for that term are increasing, but that its popularity compared to other searches is expanding.
Inflation searches are inflating
Source: Google Trends data as of 5/21/2021. Numbers on the Y-axis represents normalized search totals on a scale from 0–100, where the highest point, or top searches, is represented by 100.
While it’s very early to say the rise in inflation has passed, there are signs that the fastest part of the rebound in inflation might soon be over. Since markets tend to react to the “change in the change,” a coming shift to a slower pace of increasing prices could be important for inflation-sensitive assets and central bank actions.