Higher or lower?
Next week’s investment newsletter will delve into the debate around inflation. In the meantime, here’s a brief taster of some of the arguments…
Why inflation will be temporarily high:
- Base effects – prices bouncing from significant lows of last year
- Re-opening the economy will cause a significant increase in demand for certain goods and services
- Lots of people have excess savings and can’t wait to spend it!
- Lots of government spending and central bank “money printing”
Why this will not be a problem long term:
- Unemployment is currently high and rising, and an estimated 4m people are still furloughed
- Many businesses will struggle once government support ends
- No real wage pressures as a result of the above
- Long term demographics and aging population means proportion of workers will fall, leading to lower growth in future