As inflation fears burn through stock markets, our best hope is for a delayed crash

The notion that inflation is a thing of a past has been breached, alongside the dam of investor confidence

We can only hope the market crash is delayed until the pandemic is under control and economic growth secured

Reading Time:3 minutes

A currency trader watches the monitors at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea, on May 13. Asian stock markets followed Wall Street lower for a second day on Thursday after unexpectedly strong US consumer price rises fuelled worries inflation might drag on an economic recovery. Photo: AP

Published: 10:15pm, 16 May 2021Updated: 10:19pm, 16 May 2021

This column suggested last week that a “coming crash” in stock markets, triggered by upward pressure on inflation and interest rates, would leave panicked investors scrambling for cover. Sure enough, Wall Street and other markets then began to wobble – not panic (yet), but fright, certainly.

Fear can be a powerful force, especially when it is well grounded, and if it comes down to a battle between fear and rationality, there really is no contest. Financial officials and economists are trying to rationalise the latest burst of stock market volatility but the fear factor suggests it is more of a rout.

Compared to the impact of the Covid-19 pandemic and, to a lesser extent, to fast-rising concerns over climate change, a major stock market correction might appear manageable. But the wider fallout from such a collapse is something that could, right now, be disastrous.

Hence the posturing by the US Federal Reserve, International Monetary Fund and other officials to assure nervous investors that the latest spike in prices and interest rates is still well within expectations and that their plans to steer the pandemic-ravaged global economy back to recovery are on track.

A hat store in Annapolis, Maryland, US, advertises that it’s hiring on May 12. Officials have been at pains to reassure investors that their plans to steer the pandemic-ravaged global economy back to recovery are on track. Photo: AFP

This is despite the United States experiencing its biggest inflation surge in nearly 13 years last month when consumer prices jumped by a far-higher-than-expected 4.2 per cent year on year. Prices rose by 0.8 per cent in April alone, compared to March.

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