We know enough about inflation to predict it won’t be returning anytime soon. For over three decades western policymakers mostly fought off deflationary pressures and were barely successful in their effort. That it took a global pandemic—with its collapse of supply chains, and waves of stimulus money—to finally trigger a supply-demand imbalance tells us everything we need to know about the risk that inflation returns anytime soon. Without a grand, coordinated effort taking place at scale, any new bouts of inflation just can’t occur, leaving the underlying deflationary supertrend to carry onward.
The world has been grappling with a deflationary trend for over 30 years now. The factors are numerous—everything from the fall of the Berlin Wall and the formation of the modern European Union, to the rapid uptake of productivity enhancing software, manufacturing automation, and offshoring. And even now, the world has still not run out of very low cost labor that keeps being integrated into the global workforce. If you live in the West, you are often exposed to stories of quickly rising cost of living in cities like London and Los Angeles. But these are mere islands in a world that holds vast inventories of cheap land and real estate. Indeed, all high-cost Western countries are beset with large post-industrial regions which continue to see population loss, and declining property values.
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