Feature: Will Inflation Flare or Flop?
- Keywords:
- covid-19
As economies begin to gradually reopen, and markets struggle to gauge the shape of the near-term recovery, the longer-term impact of this traumatic episode is also a big source of debate. After concerns about the fiscal legacy of the massive income support measures, the next biggest anxiety among investors is around the potential for inflation to emerge, in part as a result of the huge budget deficits and related central bank bond buying.
It may seem passing strange to even be talking about inflation risks, just weeks after oil prices went negative and after decades of stability in inflation trends. And, there is little debate that the initial impact of the global economic downturn in 2020 is disinflationary due to the steep drop in demand for a huge range of goods and services. The most dramatic example of this can be seen from the 1930s, when the Great Depression ushered in a full decade of outright deflation and Canada’s CPI fell at nearly a 2% annual rate. However, the longer-term history also clearly reveals that inflation can quickly morph from years or even decades of relative stability to a world of high and volatile trends following major shifts in the underlying economy. Inflation shot higher after WWII amid massive budget deficits, as one example.
Could this prove to be one of those key inflection points for inflation? This feature piece considers the arguments for and against. The full report also includes:
- Shutdownify: Does this mark the low point for employment and the high point for the jobless rate?
- Will the U.S. economy recoup all of the jobs lost because of the pandemic; and, if so, when?
- Tracking COVID-19
- China: Why so little fiscal stimulus so far?
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Douglas Porter
Chief Economist and Managing Director
Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Economist at BMO Financial Group and author of the popular…(..)
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Sal Guatieri
Senior Economist
Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with two decades experience as a macro economist. With BMO Financial Group since 1994, his m…(..)
View Full Profile >As economies begin to gradually reopen, and markets struggle to gauge the shape of the near-term recovery, the longer-term impact of this traumatic episode is also a big source of debate. After concerns about the fiscal legacy of the massive income support measures, the next biggest anxiety among investors is around the potential for inflation to emerge, in part as a result of the huge budget deficits and related central bank bond buying.
It may seem passing strange to even be talking about inflation risks, just weeks after oil prices went negative and after decades of stability in inflation trends. And, there is little debate that the initial impact of the global economic downturn in 2020 is disinflationary due to the steep drop in demand for a huge range of goods and services. The most dramatic example of this can be seen from the 1930s, when the Great Depression ushered in a full decade of outright deflation and Canada’s CPI fell at nearly a 2% annual rate. However, the longer-term history also clearly reveals that inflation can quickly morph from years or even decades of relative stability to a world of high and volatile trends following major shifts in the underlying economy. Inflation shot higher after WWII amid massive budget deficits, as one example.
Could this prove to be one of those key inflection points for inflation? This feature piece considers the arguments for and against. The full report also includes:
- Shutdownify: Does this mark the low point for employment and the high point for the jobless rate?
- Will the U.S. economy recoup all of the jobs lost because of the pandemic; and, if so, when?
- Tracking COVID-19
- China: Why so little fiscal stimulus so far?
View important Disclosure Statements here.
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