Insight - Omicron derails inflation view and policy may hesitate

Although headline inflation has raced to multi-decade highs in the US and Europe through November, the worst of the annual base-effects exaggerating that were already peaking out. The 15% lunge in world oil prices triggered by the spread of Omicron will amplify that considerably over the coming months.

OMICRON won’t stop investors betting on a post-pandemic world but it delays the “all clear” – possibly dampening the worst of the winter inflation scare and avoiding reflex policy reactions.

Just as the US Federal Reserve (Fed) and major central banks start to acknowledge that rising inflation may no longer be transitory, this new Covid-19 variant “of concern” to the World Health Organisation burst onto headlines last week.