According to Oxford Economics, the strongest asset price boom in decades is currently taking place, which will have potentially large macroeconomic effects.

Adam Slater at Oxford Economics, said: “Recent asset booms haven’t generally been inflationary, but the current one, alongside other upward pressures on prices, adds to the need for central bank vigilance. House prices are growing at over 10% year-on-year in many major economies, with real prices across the advanced economies climbing at the fastest pace since the peak of 2005. The housing surge is part of a broader asset boom encompassing stocks and commodities. US stocks already looked overvalued before the pandemic, but the current asset price surge is the biggest in decades and also unusually synchronised across assets.

“The asset price boom has potentially large impacts on spending. The impact on consumption could be boosted by a revival in home equity withdrawal visible in the US and UK.”

Slater concluded: “Well-anchored inflation expectations cut the risk of asset inflation spilling over to price inflation, but loose monetary conditions could push asset prices even higher, risking an eventual sharp correction. For central banks, neither this outcome, nor persistently higher inflation, are attractive prospects.”