Defending an argument, or trying to learn?
Everyone’s talking about inflation these days. That makes sense—prices for all kinds of things are increasing at higher rates than we’ve seen in years.
Some of this is simple arithmetic. 2020 had collapsing prices. Inflation is typically measured against last year. As the economy recovers in 2021, increases from last year’s prices are essentially certain. This “base effect” will start to wane in the next few months and it will look quite different in 2022.
But there’s more to it than math. There are real shortages of things. Inventories are extremely low. There’s real difficulty in shipping stuff around the world right now. And there’s been trillions of dollars of government stimulus to boost demand. The supply side can’t currently keep up with the demand side, and that pushes prices higher.
But if we were heading into an inflationary super cycle, then why are long term Treasury yields at 3 month lows? Why is the price of copper falling? Why is the price of lumber collapsing? These are some of the most economically sensitive prices in the world. They’re out of step with the conclusion.
Perhaps there will be more inflation in the coming months and years. Or perhaps inflation has already peaked. Time will tell. We’ll find the clues if we try our best to maintain a dispassionate view of the facts on the ground.
Rather than a soldier defending a position, we need to be a scout mapping the terrain. The inflation question isn’t settled, and we need to continue to process new information as it comes.