March 10, 2026

The Last Mile of Disinflation: Why the Path Still Matters

Inflation has cooled meaningfully from the peaks of the last two years. That is good news, and it is clearly visible in the headline numbers across many developed markets.

Yet markets continue to behave as if inflation is not “solved”. Interest rate expectations still move sharply from month to month. Bond yields can swing. Equity leadership rotates. And investor confidence in a smooth return to the old world remains fragile.

This is not a contradiction. It is the “last mile” problem.

The final stage of disinflation is rarely a smooth glide path. It is often uneven, noisy, and prone to setbacks, not because inflation is about to reaccelerate to peak levels, but because the hardest parts to cool are the most domestically driven parts.

Goods inflation falls quickly, services inflation does not

A useful distinction is between goods and services inflation.

Goods prices tend to respond quickly when supply chains normalise, shipping costs fall, inventories rebuild, and demand cools. Services inflation is different. It is shaped by wages, rents, labour availability, and domestic pricing power. It often proves stickier and it is slower to turn.

That matters because central banks do not set policy based solely on the headline number. They focus on the parts of inflation that are persistent, and the parts that risk feeding into wage setting and expectations.

This is why the last mile matters. It is the stage where inflation can be falling, but policy can remain cautious.

Why this keeps markets jumpy

When inflation is in the last mile, markets tend to behave in a particular way:

Rate expectations swing between “cuts soon” and “cuts later” as each data point arrives.
Bond volatility stays elevated because the path of policy is less predictable than the direction of travel.
Equity leadership becomes more dispersed because winners and losers depend more on balance sheets, pricing power, and the discount rate.

In other words, it is not only the level of inflation that matters. It is the confidence investors have in the path back to stability.

The Middle East is a live example of the same point

The current conflict in the Middle East is understandably the dominant topic for many investors. The key issue for markets is not the headlines. It is the transmission mechanism.

In practical terms, that means energy and the security of physical supply and key transit routes. If events remain contained and disruption is limited, the market impact is often a volatility shock that fades. If disruption becomes sustained, the risk is that higher energy prices slow growth while complicating disinflation and delaying policy easing.

This is a good example of why the last mile is not linear. Even when inflation is cooling, the world can still produce shocks that change the short-term path.

What we watch, rather than what we predict

In this phase, prediction is less useful than a disciplined set of indicators.

We focus on:

Wage growth and services inflation, which drive central bank sequencing
Inflation expectations, because they shape behaviour and policy credibility
Financial conditions and credit spreads, early signs of stress transmission
Energy supply and the persistence of disruption, the difference between a spike and a regime shift
Earnings revisions breadth, whether market leadership is broadening or narrowing

This is how we avoid being pulled around by narratives.

What it means for investors

The last mile of disinflation is not a reason to be pessimistic. It is a reason to be prepared for an environment that is less smooth than the one many investors became used to.

In practical terms:

Diversification matters more, because dispersion increases when the rate path is uncertain.
Pricing power matters more, because persistent services inflation and cost shocks tend to separate strong businesses from fragile ones.
Risk control matters more, because markets can reprice quickly on small changes in policy expectations.

This is why we have argued that inflation volatility, rather than a single inflation number, may be the defining feature of the current regime.

Looking ahead

Over the coming months we will build on this framework. The near term can still feel inflationary in its behaviour, even as longer-term forces become more disinflationary through investment, capacity build-out and productivity.

This is the bridge to the framework we will set out more fully in our upcoming quarterly outlook for clients, and then as a two-part public series in April.

Brighton Capital Management – Insights
If you would like to discuss how these themes may affect your own investments or financial planning, please contact us to arrange a conversation with one of our advisers.

This article is for information only and does not constitute personal advice or a recommendation to buy or sell any security, fund or index. The value of investments can go down as well as up, and you may get back less than you invest. Past performance is not a guide to future returns. If you are unsure as to the suitability of any investment, please seek advice that takes your personal circumstances into account.