Inflation will be stickier for longer and double what consensus views predict in 2 years, Deutsche Bank says

• Don't expect scorching inflation to abate in the near term, Deutsche Bank says.
• Using history as a guide, the bank says inflation will likely stay above the consensus target beyond two years.

Don't expect inflation in the US to fall below 3% within two years, according to Deutsche Bank.

Analysts led by Deutsche's Jim Reid wrote in a note on Tuesday that when using previous bouts of high inflation as a guide, the US is likely to see price pressures remain elevated and take two years to even fall below 6%, and will hover around that level in five years.

And while the prospect of inflation dropping to or below 3% within two years isn't impossible, Deutsche says "it would be around the 25th percentile of observations through history, and around 4pp beneath the median outcome."

Deutsche's latest inflation observation may come as a reality check for investors, which have grown increasingly bullish in recent weeks, leading to several rallying sessions on Wall Street on hopes that the Federal Reserve is growing concerned over the prospect of over tightening and tipping the economy into a full-blown recession.

But if inflation remains as persistent as Deutsche says history suggests, it's likely the Fed will have no choice but to keep tightening, and put growth concerns on the back burner.

Deutsche relied on 50 developed and emerging market economies, with the data stretching as far back as 100 years in some cases. The survey established 8% as a threshold, and relied on three starting points: 1920, 1950 and 1970 through 2019.

Deutsche added that the Federal Reserve has mostly been a step behind inflation thus far, and "you could argue this is the loosest policy response to inflation we've ever seen in peacetime."

"If the median through history is correct, then the turbulence of 2022 could prove to be just the beginning," the note concluded.