With an economy on life support – is inflation inevitable?

As countries around the globe are flooding their respective economies with enough cash to hold back the financial tsunami that could be felt by COVID-19 … will all that cash inevitably come with an unfortunate consequence like inflation?

Those who work the markets and do their best to see into the future … think so.

With the world economy forecast to shrink 6% this year, it may seem like a strange time to fret about inflation.

And sure enough, market-based gauges suggest an uptrend in prices may not trouble investors for years. U.S. and euro zone inflation gauges indicate that annual price growth will be running at barely over 1% even a decade from now.

So if inflation really is, as the IMF put it in 2013, “the dog that didn’t bark”, failing to respond to all the central bank money-printing unleashed in the wake of the 2008-9 crisis, why should investors prepare for it now, especially as demographics and technology are also conspiring to tamp down inflation across the developed world?

The answer is that some think the dog really will bark this time, partly because - unlike in the post-2008 years - governments around the world have also been rolling out massive spending packages, in a bid to limit the impact of the coronavirus pandemic.

“We will be pushing, pushing, pushing on the string and dropping our guard, then 3-5 years from now...that’s when the (inflation) dog will start barking,” said PineBridge Investments’ head of multi-asset Mike Kelly, who has been buying gold on that view.

“Gold worries about such things long in advance. It has risen through this coronavirus with that down-the-road-risk top of mind,” he added. June 22 - Reuters

It’s a daunting and stressful scenario.

• How much inflation could America expect and what would it mean to household incomes and spending?
• What industries would be further devastated by this?
• Is there any way to reverse inflation or is there an upside to it for some?

If you are a reporter covering this topic – then let our experts help.

Jeff Haymond, Ph.D. is Dean, School of Business Administration and a Professor of Economics at Cedarville and is an expert in finance and trade. Dr. Haymond is available to speak with media regarding this topic – simply click on his icon to arrange an interview.