March 12 - 2021
THE ROUTE TO AN ERA OF HIGH CONSUMER PRICE INFLATION
An era of high consumer price inflation, not just in the US but globally, most
likely lies ahead. Even so, we should be prepared for a probable lull in inflation
after a first spurt later this year. And a risk-scenario exists were a growth cycle
downturn starting in 2022 develops into a full-blown recession driven by savage
asset price deflation. The aftermath of that could be an extended period of
monetary repression rather than a resumed early march into an era of high
No wonder the so-called “reflation trade”, based on the view that a post-pandemic
boom will send long-term interest rates much higher, hardly seems
like a one-way bet. A mega stimulus package focused on the next 12 months
may make political sense in terms of a Democratic landslide in the mid-terms.
That is what “go big” is all about! However, this stimulus, coupled with the inbuilt
rebound of spending as pandemic recedes, adds to the likelihood of a
future pullback of the economy.