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If inflation does return from 2021, the consequences could be very severe as a debt crisis would be inevitable, according to analysts at Natixis. 

Read: Moderately higher inflation in response to bigger debt levels – UBS

Key quotes

“There are structural long-term drivers of a resurgence of inflation: reshoring of production from low-labour-cost emerging countries; population ageing, driving up the proportion of non-producing retired consumers.” 

“OECD countries will be hit by a negative supply shock: companies and their capital will disappear, productivity will fall due to the new health regulations: we should, therefore, expect a fall in potential GDP, which is inflationary.” 

“Even though unemployment is high, wage demands are going to appear, starting from the sectors that have played a key role during the health crisis: healthcare, retail, transport, security, agrifood, etc.”

“A helicopter money-type monetary policy is being employed: central banks are monetising fiscal deficits, which are resulting from public transfer payments to economic agents. This is equivalent to direct transfers of money to these economic agents and, therefore, boosts demand for financial and real estate assets but also potentially demand for goods and services.”