. . (Bloomberg Opinion) - It may seem strange to worry about inflation amid a global recession, pandemic, and enormous political ruins in the US. S.. . , but I very much suspect that it will tighten soon and sharply. How quickly this happens will depend on how quickly developed countries recover over the next few months, but the pressure is mounting. As has been the case for many years, global inflation is everywhere marked with “Made in Asia”. This time, however, this is likely to be exacerbated by much greater supply bottlenecks in the economy. First, a little humility. Predicting inflation is devilishly difficult. In general, the best forecast right now is inflation. Central banks were neither good at predicting nor creating inflation. This is mainly due to the fact that classical economics largely assumes that an increase in the supply of money if conditions remain the same will drive up inflation. And yet, after years of rate cut, quantitative easing, etc.. only asset prices rose. It was Apple Inc. . no apples, so to speak. It is clear that not all things are created equal. Economic models assumed that the rate at which money changes hands (its rate in the jargon) is both stable and predictable. Instead, it collapsed. Therefore, everyone who predicted a massive spike in inflation due to the central bank's QE was wrong. The pace may be increasing - your guess is as good as mine - but that wouldn't tell us much about what's going to happen in the next few years as it's more of a long-term indicator. And there are numerous signs that inflation is rising. Ask yourself the following counterfactual. Had you known that the economies of the industrialized countries would largely come to a standstill, what would you have expected with the prices of commodities? You probably would have expected them to collapse. However, as the graph below shows, they haven't even plummeted as sharply as they did in the 2015 manufacturing recession, let alone during the global financial crisis. Prices are now rising sharply, also because Asian growth is booming. Chinese export prices have increased year on year. Without oil, the prices of industrial goods are also higher than at the end of last year. Even if nothing moves until late spring 2021, the year-on-year comparisons will look very dramatic - as prices were at their lowest point this spring. These trends are already noticeable in the industrialized countries. U. . S.. . For example, import prices are rising sharply. The prices for durable goods are on a crack. There are signs that service inflation is also rising. Still, much of the developed world is still in the midst of a pandemic that is suppressing demand. When the vaccine comes or the virus blows itself out, the demand increases intelligently. What happens to the prices if this is the case? I very much suspect that a lot of production capacity has been lost. Both domestically and internationally, transport is both more difficult and expensive. The fashion for ESG investing has likely also resulted in a lack of investing in things that you dig out of the ground or drop on your foot. Assuming all of this is taking a long time to get up and running, you'd expect these restrictions to persist. The same is probably true for services. Many companies have already been taken out of business and many more are likely to hit the wall. The supply potential of the national economies has therefore lost a lot. All of this means that the way of least resistance when demand increases is higher prices. How the central banks react is crucial. They told us they were going to get the economy hot. What they are really saying is that nothing they did made the slightest difference to headline inflation and they don't know why. But let's take them at their word. What would it mean in practice? Would they avoid setting short rates, or would they try to keep long rates low at a time when the national debt is likely to remain huge? Both of these would, in fact, ease monetary policy by lowering real interest rates when economies - and inflation - grow strongly. This is not believable and countries that do nothing would likely instead see their currencies fall, pushing imported inflation higher. My guess is that private longer-term bondholders don't wait for central banks to change their minds knowing they'll have to rise at some point. The risk is asymmetrical. Bond yields are staggeringly low and sooner or later they may rise rapidly: Fixed income has great leverage, and bonds with de minimis coupons can move much more expensive than those that actually pay a decent interest rate. Those with a few gray hairs will remember the 1994 Bond slaughter. At some point I would expect the yield curves to steepen dramatically compared to today's level. It makes sense to avoid longer-term government and corporate debt and stick to the very short end. As well as buying out of the money, long term put options on long term debt. Central banks have been suppressing volatility and interest rates in the debt markets for years. This becomes much more difficult. This column does not necessarily reflect the opinions of the editors or Bloomberg LP or its owners. Richard Cookson was Head of Research and Fund Manager at Rubicon Fund Management. Prior to that, he was Chief Investment Officer at Citi Private Bank and Head of Asset Allocation Research at HSBC. For more articles like this, please visit us on Bloomberg. com / opinionSubscribe now to stay ahead of the curve with the most trusted business news source. © 2020 Bloomberg L. . P. .