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When Will Inflation Consume Us?

One of the more interesting storylines of the 21st century so far is the lack of large inflation spikes, at least when using conventional measures of inflation.  Across the world, inflation has been quite tame, even with the massive government spending and central bank money printing operations.  The question here is simple - When will inflation start to eat into daily life, eventually consuming all of the western world’s wealth?

To some, the question is buffoonery at its best. We live in the modern age, an age in which governments can monitor daily - even hourly - movements in the economy and adjust policy to combat inflation quickly.  This, of course, implies that government bankers and others have strong control over what they can do to address the risk of inflation.  Perhaps they do - and perhaps they do not.

Could 2020 be the year that this gets going in earnest?  Here is a look at inflation across the globe leading up to today.

Inflation Today - The End of 2019

The chart shows the year-over-year change in prices from 2000 to 2019.  Each color is a country’s change in prices.  Highlighted by the gray circle is the recent downward trend in prices.  Reflation on the horizon in 2020? 

What Three Causes Could Lead to More “Inflation Consumption” in 2020?

The 2019 picture is ending.  What could cause inflation to move higher in 2020?  Three possibilities that seem to be key drivers are: first, more money printing out of central bankers; and second, lower interest rates (let the historically low interest rates live on forever!); and third, more government spending, something that the like of new ECB President Christine Lagarde has been pushing.  Putting these three things together without an imminent recession will certainly provide a powerful upward force on the coming year’s inflation experience.

Conclusion

In looking at the inflation picture at the end of 2019 and adopting the view that government central bankers may print another $1 trillion in 2020, inflation may be on the edge of some much bigger increases in 2020.  Hold on to your seats.