Officially US inflation is 3.3% which is above target but within tolerances if accurate. If accurate is a big question and most would say it is not accurate, not even close. However lets not go down that rabbit hole. Instead let me say, higher inflation is coming.
The inflation we are used to is caused by governments increasing their money supply. They say ‘it wasn’t us, we didn’t do it,’ but it was and they did. The only people that can create inflation is govenments because they control the supply of money. More money than goods and up goes inflation.
There are a few reasons they create inflation. The first is it dilutes the governments debts by a gentle default on money, which you hold and have lent to them. This is good stuff if you are addicted to spend, spend, spend… and they are. It’s a tax on the economically passive and the savers. Rentiers don’t need those sorts, because those sorts don’t need the rentiers.
The second reason is deficit spending creates inflation because its generally not productive and therefore increases demand but not supply and secondly because there is a circularity to it where you print one kind of paper to get another kind of paper which you spend back into the economy. The new paper can be used to mint more paper and increase the supply of money, unless you run a draconian monetary policy the likes of which has long since been discarded.
So inflation is coming because the west is going to print more and if its not careful deficits are going to balloon. This deficit issue is going to be driven by a shift in the global economy where the fracturing of globalisation is going to requite build outs of local supply chains and all the reinflation that goes along with financing it. Evidence for that can be seen in the US where the US deficit goes marching on up.
However if that upward pressure was not enough, things are going to be getting more expensive in real terms.
So you will see an increase of money supply and an increase in inflation adjusted prices too. That’s a double whammy.
Where is that increase coming?
The bottom line is, as globalisation shatters and supply chains shrink, efficiency falls and prices rise. The whole point of globalisation is that there are places than can do things cheaper and you can swap your stuff with theres and everyone benefits. However in the age of trade war where parties become enemies, win/win, goes out of the window and pretty soon its win/lose logic pushing up prices and pretty quickly lose/lose.
Conflict is not the friend of prosperity and there is plenty of that going on. Meanwhile conflict is the mother of inflation, so we can expect plenty of offspring.
All roads lead to inflation and a commodity supercycle. Commodities need peace to be cheap. The Colonial West went adventuring to procure them and now the system that kept them cheap is being torn down and the replacement is going to be a lot more expensive.
There is a multi-trillion dollar technology war to come over AI and Robots and the core adversaries US v China and this will be inflationary because once again it will need governments to inflate, especially the US which simple does not have the industrial core onshore to support it. China is already ahead on robots and running neck and neck on AI, so that battle with be pivotal to the outcome. AI and robots is meant to be deflationary, but it will be a long time before production is on shored and turning out goods like a 1950s SF story.
A de-globalised , multipolar world is going to be a more expensive one, but if you ride the AI, Robotics wave or the commodity supercycle you’ll be fine. However being economically passive will be a difficult position to be in.