El-Erian Sees 3 Inflation Scenarios: Worst Thing 'Is To Fall Back Into Complacency'


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Allianz chief economic adviser and noted economist Mohamed El-Erian has warned about the possibility of complacency creeping in as the notion that decades-high inflation in recent times is “transitory” has resurfaced.

"By encouraging complacency and inertia, it could exacerbate an already serious problem and make it harder to solve," El-Erian wrote in a post titled “There Is More Inflation Complexity Ahead” on Project Syndicate.

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El-Erian said for the rest of the year and early 2024, he sees three different scenarios linked to inflation.

Scenario 1: The first is orderly disinflation, also known by critics as "immaculate disinflation." Under this, inflation continues to fall steadily toward the Fed's 2% target without damaging economic growth and jobs. "The dynamics involve primarily a labor market that avoids excessive wage increases while continuing to anchor strong economic activity … I would put the probability of this scenario at 25%," El-Erian said.

Scenario 2: Inflation remains sticky at 3%-4% over the second half of 2023. The Fed would be forced to choose between crushing the economy to bring down inflation to its 2% target, adjusting the target rate to make it more consistent with changing supply conditions, or waiting to see whether the country can live with a stable 3%-4% inflation. El-Erian puts the probability of such a situation at 50%.

Scenario 2: Price rise makes a U-turn, led by services inflation owing to a fully recovered Chinese economy and a strong U.S. labor market. El-Erian says he sees a 25% probability for this case.

"Simplistic economic narratives, especially comforting ones that entice those looking for shortcuts, often mislead much more than enlighten," El-Erian wrote, adding that whatever happens, “the worst thing to do is to fall back into complacency.”

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27% profit every 20 days?

This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.


Posted In: Analyst ColorMacro Economic EventsNewsEconomicsFederal ReserveInflationMohamed El-Erian