Inflation Resurgence Risk: Central Banks Face Second Wave Challenges
bIAnk AI Research · January 2026 · 7 min
Energy price shocks and tariff-driven cost increases are raising concerns about a potential inflation resurgence. Central banks may need to pause or reverse rate cuts, with significant implications for leveraged transactions.
After two years of disinflation progress, early 2026 data is raising concerns about a potential inflation resurgence. The combination of higher energy prices, tariff pass-through effects, and resilient services inflation is challenging the "soft landing" narrative that has supported asset valuations.
The Federal Reserve's preferred PCE inflation measure has ticked up to 3.2% in recent readings, above the 2.5% level seen in late 2025. Core services inflation remains particularly sticky, with shelter and healthcare costs continuing to rise despite restrictive monetary policy.
For M&A practitioners, the inflation outlook has direct implications for deal pricing and financing. Higher inflation typically leads to higher discount rates, compressing valuations for growth-oriented assets. Meanwhile, floating-rate debt becomes more expensive to service.
The European Central Bank faces a particularly complex situation. While headline inflation in the eurozone has remained closer to target, producer price indices are showing upward pressure from energy and import costs. The ECB must balance inflation concerns against economic growth that remains fragile.
According to J.P. Morgan Research, the probability of central banks needing to pause rate cuts has increased from 15% to 35% since November. In a "no landing" scenario where inflation reaccelerates while growth remains resilient, rates could stay higher for longer than markets currently expect.
Sector-specific implications are significant. Real estate transactions remain challenged by financing costs, while infrastructure assets with inflation-linked revenues are attracting premium valuations. Companies with pricing power are commanding higher multiples than those in competitive, commoditized markets.
For sponsors with existing portfolios, the inflation environment creates both challenges and opportunities. Portfolio companies with operating leverage and the ability to pass through costs are well-positioned, while those with fixed-price contracts or labor-intensive operations face margin pressure.
Key takeaways
- PCE inflation has risen to 3.2%, above late-2025 levels of 2.5%
- Probability of rate cut pause increased from 15% to 35% since November
- Infrastructure assets with inflation-linked revenues command premium valuations
- Companies with pricing power attracting higher M&A multiples
- Real estate transactions remain challenged by elevated financing costs