Covid Financial Impact - Inflation or Deflation?
Discussion
Lots of conflicting and contradictory articles about whether an outcome of the coronavirus pandemic for investors and those simply trying to do the best with their savings is likely to be deflation or inflation.
Blackrock's outlook and that of various investment managers seems to be to expect inflation.
https://www.blackrock.com/corporate/literature/whi...
Troy Trojan which I have a reasonable sum in seem to like US TIPS and Gold as some protection against inflation.
I'm a luddite with my understanding of exactly why there is a risk of either so what do we think and why?
Blackrock's outlook and that of various investment managers seems to be to expect inflation.
https://www.blackrock.com/corporate/literature/whi...
Troy Trojan which I have a reasonable sum in seem to like US TIPS and Gold as some protection against inflation.
I'm a luddite with my understanding of exactly why there is a risk of either so what do we think and why?
It's already going up. Straight away day 1 supermarkets took advantage and every 3 for 2 etc offers pulled from shelves.
Now, price marked pizza at £1 this week is now PM at 1.39.
4 stella went up pm 6.49 to 6.75
JTI tobacco put there brands up 35p cigs 50p 30g and 80p on a 50g.
Furniture suppliers have a 5% increase 1st of August.
I could go on but you get my point.
Now, price marked pizza at £1 this week is now PM at 1.39.
4 stella went up pm 6.49 to 6.75
JTI tobacco put there brands up 35p cigs 50p 30g and 80p on a 50g.
Furniture suppliers have a 5% increase 1st of August.
I could go on but you get my point.
So what mechanism is going to drive inflation?
Demand-pull inflation? I think it's unlikely we have an economy nearing full capacity.
Cost-Push Inflation? I don't think we are seeing anything like higher energy prices or rising wages.
Devaluation? - In 2008 Sterling devalued by 25% against the dollar but that only led to a blip of inflation
Rising wages - Globalisation is going to end and firms are going to have to compete for labour? Believe it when I see it.
Money printing - Where's the evidence about a growth in velocity of money? Are people out there going spend, spend, spend?
As for the article linked to, appears to be buzz word bingo rather than putting forward a case for higher inflation.
Demand-pull inflation? I think it's unlikely we have an economy nearing full capacity.
Cost-Push Inflation? I don't think we are seeing anything like higher energy prices or rising wages.
Devaluation? - In 2008 Sterling devalued by 25% against the dollar but that only led to a blip of inflation
Rising wages - Globalisation is going to end and firms are going to have to compete for labour? Believe it when I see it.
Money printing - Where's the evidence about a growth in velocity of money? Are people out there going spend, spend, spend?
As for the article linked to, appears to be buzz word bingo rather than putting forward a case for higher inflation.
Edited by Fittster on Monday 20th July 07:26
Excellent question. I have just finished a book called Price of Tommoroow by Jeff Booth that explores Deflation and many other areas.
My take is that we will enter a short period of Deflation and when a cure is eventually found the positive impact this will have will make the case for inflation. But this could be in 2022 or whenever we do get a cure.
My take is that we will enter a short period of Deflation and when a cure is eventually found the positive impact this will have will make the case for inflation. But this could be in 2022 or whenever we do get a cure.
Fittster said:
So what mechanism is going to drive inflation?
Demand-pull inflation? I think it's unlikely we have an economy nearing full capacity.
Cost-Push Inflation? I don't think we are seeing anything like higher energy prices or rising wages.
Devaluation? - In 2008 Sterling devalued by 25% against the dollar but that only led to a blip of inflation
Rising wages - Globalisation is going to end and firms are going to have to compete for labour? Believe it when I see it.
Money printing - Where's the evidence about a growth in velocity of money? Are people out there going spend, spend, spend?
As for the article linked to, appears to be buzz word bingo rather than putting forward a case for higher inflation.
I guess one of the big questions is inflation of what? Recently it has been asset prices, rather than the "real" economy. Demand-pull inflation? I think it's unlikely we have an economy nearing full capacity.
Cost-Push Inflation? I don't think we are seeing anything like higher energy prices or rising wages.
Devaluation? - In 2008 Sterling devalued by 25% against the dollar but that only led to a blip of inflation
Rising wages - Globalisation is going to end and firms are going to have to compete for labour? Believe it when I see it.
Money printing - Where's the evidence about a growth in velocity of money? Are people out there going spend, spend, spend?
As for the article linked to, appears to be buzz word bingo rather than putting forward a case for higher inflation.
Edited by Fittster on Monday 20th July 07:26
hotchy said:
It's already going up. Straight away day 1 supermarkets took advantage and every 3 for 2 etc offers pulled from shelves.
Now, price marked pizza at £1 this week is now PM at 1.39.
4 stella went up pm 6.49 to 6.75...
That's a supply/demand issue, or opportunism. There's still competition.Now, price marked pizza at £1 this week is now PM at 1.39.
4 stella went up pm 6.49 to 6.75...
It may be that struggling businesses crank prices up to try to get back in the black, but beyond a point people will just go elsewhere.
Does seem that I'm reading more about inflation being the "risk" than deflation.
Presume that makes cash in the bank even less useful
The market is starting to wake up to inflation risk – here’s why that matters
Presume that makes cash in the bank even less useful
The market is starting to wake up to inflation risk – here’s why that matters
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hstewie said:
hstewie said: Does seem that I'm reading more about inflation being the "risk" than deflation.
Presume that makes cash in the bank even less useful
The market is starting to wake up to inflation risk – here’s why that matters
Surely that would depend on how much cash one has and how one came by it i.e. passive versus active saver. Passive savers who were comfortably off could just be sweeping the monthly remains of their current account to a savings account and be more resilient to inflation. Active savers who may have to juggle income to free up cash to save may feel any cash in the bank is useful but vulnerable to inflation.Presume that makes cash in the bank even less useful
The market is starting to wake up to inflation risk – here’s why that matters
Back to the 70s - high unemployment and high inflation.
Having a large proportion of the population on benefits is expensive and disruptive.
Anyone who wasn't there (in the 70s) won't understand just how much that combination fecked up the UK until Maggie switched the country from making stuff to selling finance.
That led to a decade of loads of money yuppies and some interesting times.
Also gave us the famous 'I don't give a st what your house is worth' T-shirt.
Boris thinks that he can spend cheap loan money to create jobs, but when the interest rates on the loans start to take off he's going to be in trouble.
Fortunately he currently has a smart cookie Chancellor who may just be able to get us out of this mess.
Or not.
Having a large proportion of the population on benefits is expensive and disruptive.
Anyone who wasn't there (in the 70s) won't understand just how much that combination fecked up the UK until Maggie switched the country from making stuff to selling finance.
That led to a decade of loads of money yuppies and some interesting times.
Also gave us the famous 'I don't give a s
t what your house is worth' T-shirt.Boris thinks that he can spend cheap loan money to create jobs, but when the interest rates on the loans start to take off he's going to be in trouble.
Fortunately he currently has a smart cookie Chancellor who may just be able to get us out of this mess.
Or not.
Inflation is surely what all the governments in the world need, to reduce the actual value of the massive debts they have incurred.
With everyone in the same boat, there's no room to just devalue your own currency (and in the UK's case, the pound is already worth peanuts against other major currencies compared with ten years ago anyway)
If nobody wants to buy what UK PLC is offering (and with nobody physically in London, the appeal to firms of being UK based is waning rapidly) then it could be doubly unpleasant for us. Especially as last time (1970s) we also had North Sea oil coming on stream which briefly made the pound a petrocurrency.
Weimar anyone?
With everyone in the same boat, there's no room to just devalue your own currency (and in the UK's case, the pound is already worth peanuts against other major currencies compared with ten years ago anyway)
If nobody wants to buy what UK PLC is offering (and with nobody physically in London, the appeal to firms of being UK based is waning rapidly) then it could be doubly unpleasant for us. Especially as last time (1970s) we also had North Sea oil coming on stream which briefly made the pound a petrocurrency.
Weimar anyone?
If demand for lots of stuff from city-centre office blocks to holiday cruising falls, then jobs will be lost and margins will be squeezed.
I suspect that the chance of inflation are very low, while there are deflationary measures that the Government are trying to reduce, so my feeling is that we could be bouncing along on the bottom for a good while.
I suspect that the chance of inflation are very low, while there are deflationary measures that the Government are trying to reduce, so my feeling is that we could be bouncing along on the bottom for a good while.
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