Higher or lower?

Next week’s investment newsletter will delve into the debate around inflation. In the meantime, here’s a brief taster of some of the arguments…

Why inflation will be temporarily high:

• Base effects – prices bouncing from significant lows of last year
• Re-opening the economy will cause a significant increase in demand for certain goods and services
• Lots of people have excess savings and can’t wait to spend it!
• Lots of government spending and central bank “money printing”

Why this will not be a problem long term:

• Unemployment is currently high and rising, and an estimated 4m people are still furloughed
• Many businesses will struggle once government support ends
• No real wage pressures as a result of the above
• Long term demographics and aging population means proportion of workers will fall, leading to lower growth in future