The Other Side of Inflation

Now here’s the other side of the inflationary argument from Van Hoisington and Lacy Hunt whom I greatly admire and respect. They believe that inflation will be short-lived this year and inflation will not average 2% for the year which is the Fed’s goal. Why?

·        Inflation is a lagging indicator.

·        Productivity will rebound vigorously pushing the cost per unit down.

·        Third, restoration of supply chains will be disinflationary.

·        Next, accelerated technological advancements will continue to lower costs.

·        Fifth, massive debt increases will greatly slow economic growth next year and in future years.

·        Finally, lower birth rates and aging populations are disinflationary as consumer demand lessens with fewer child births and as people age, as people in their 80’s spend less than anyone else.

I think their best argument is #5 as I don’t think we will see real GDP growth > 2.5% after 2021 possibly ever again. In fact, I could see real GDP growth slow to < 1.5% on a near permanent basis in a year or two as our trillions of debt spending brought future spending in 2022 and 2023 into 2021.

So, who will be correct? Both sides could be correct. We might see inflation and long-term rate soar in 3 to 4 months and then inflation could plummet as consumer spending grinds to a halt and debt restricts economic growth.