Inflation is going to be a lot more sticky this cycle

Even though we think inflation will fall as we progress through the current recession, there are powerful inflation pressures in place that may prevent a return to the low-inflation era of the 2010s.

• Demographics

Baby boomers are retiring and adult participation in the workforce is continuing its multi-decade decline. Companies are scrambling to find workers and unlike previous recessions, workers are being retained (for now).

• Debt

Governments have enormous levels of debt and must find a way to deal with it. Economists say there are 3 ways to deal with debt: 1) pay it off, 2) default, and 3) inflate it away if you are a government. Here is a 2011 paper advocating inflating away government debt: The Liquidation of Government Debt (http://ow.ly/6oc850LuRcL).

• Deglobalization

Tensions with Russia and China are disrupting very long supply chains that the world has come to depend on over the last 20 or 30 years. Whether it be Ukranian food going to African countries or Chinese goods sold all over world, interruptions in the normal trade of goods will make everything more expensive. S

• Deficit Spending

Global governments have spent lavishly during the pandemic, just as they have over recent decades. Low-cost debt has encouraged borrowing, injecting large amounts of cash into the global economy. So far, the response of many governments to the current inflation is to find ways to provide more growth so people can pay the bills.

If you'd like to discuss how to manage through this environment, please reach out to us: info@lloydsintrepid.com.

Robert Lloyd, CFA®

Chief Investment Officer

Lloyds Intrepid Wealth Management

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