There is a growing belief that several years from now we will look back to today and mark it as the start of the great inflation resurgence. Without question, this is one of the most important concerns for investors today. And as we recently noted, while politics and elections are important for financial markets, structural trends in the economy and inflation matter much more. In reality, there are still two separate camps on the question of inflation: the deflationists, who are still able to muster a number of strong arguments in their favor, against the inflationists, who seemingly have received more of a boost from the Fed recently.
In this Economics Weekly, we discuss the two positions, with the view that over the medium to longer term deflation is much less unlikely, and that while the risks are increasingly tilting toward a more rapid increase in inflation, we still do not feel that inflation is about to break out in any kind of uncontrolled manner.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.