Investing.com -- Deutsche Bank analysts warned in a note Wednesday that inflation risks continue to rise heading into 2025, driven by several structural and recent trends.
Despite the prevailing belief that inflation will return to target levels, Deutsche Bank (ETR:DBKGn) highlights persistent upward pressures that could lead to further inflation spikes.
“Central banks have eased policy over recent months and money supply growth is accelerating,” said the bank’s analysts.
They explain that this shift coincides with higher global tariffs and other inflationary data, signaling potential inflationary pressures.
“Meanwhile, several central banks have adjusted their mandates in a more dovish direction in recent years, with moves like average inflation targeting from the Fed,” adds Deutsche Bank.
Fiscal pressures are also said to play a significant role. Governments continue to spend on critical areas such as aging populations and defense, further fueling inflation risks.
Deutsche Bank emphasizes that the unique low-interest-rate environment of the 2010s, influenced by the aftermath of the Global Financial Crisis (GFC), was an anomaly.
“Ultimately, there still hasn’t been enough of a realisation that the environment of low interest rates and inflation during the 2010s were historically unique, reflecting the unusual circumstances in the aftermath of the GFC,” wrote the bank.
They believe the current landscape suggests a return to structurally higher inflation and interest rates.
The analysts argue that investors have consistently underestimated inflation risks, leading to overly dovish expectations for central bank policies.
This miscalculation is said to have resulted in underestimating the speed of recent interest rate hikes and overly optimistic projections for rate cuts.
Deutsche Bank concludes that while the consensus expects inflation to stabilize,” it’s clear that the risks remain on the upside.”