At the moment, inflation continues in the UK, affecting several inputs business valuers use. Increased risk-free rates are the most measurable example. Both producer and consumer sectors are contributing equally.

The job of the valuer is to determine expected future inflation, writes Aswath Damodaran in a recent blog post. What do implied inflation rate sources suggest now to guide current business valuations?

Damodaran offers some guidance:

• The investment community is anticipating higher inflation currently. “Using a measure the US Federal Reserve have developed … 94% of investors expect inflation to be greater than 2.5%,” Damodaran points out.
• Consumer expectation surveys in the UK also indicate higher inflation in 2022, and central banks throughout Europe and the US are discussing interest rate increases, which are always “intertwined” with inflation.
• That being said, other indicators are not suggesting higher inflation this year. Damodaran cites several financial indicators that counter the argument that we’re heading toward 1970s-style inflation. One is that risk capital continues to flow into UK (and global) corporate bonds. Another is that, while the two-to-10-year treasury bill rates increased at the end of 2021, longer-term treasury rates were not significantly altered.