Opinion
Why inflation will stay lower as global economies recover
Although the coronavirus has weakened demand, ageing demographics and technological advances are likely to exert downward pressure over the longer term.
Nathan SheetsContributorWith central bank balance sheets surging upward and government debt levels rising sharply, many economists and market experts are warning us to hunker down. They say that higher inflation – perhaps much higher inflation – is soon to arrive. The recent surge in the price of gold and weakening in the foreign exchange value of the US dollar has further amplified these concerns.
While it’s always good to be careful, I remember hearing these very same warnings in the years following the global financial crisis. In that episode, central bank balance sheets had also expanded in extraordinary ways. In parallel, government deficits and debt levels had spiralled upward, reflecting both explicit stimulus programs and the devastating effects of the crisis on tax receipts. The sweep of economic history cautioned that when such circumstances had prevailed in the past, inflation often shifted to a rising trajectory.
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