Inflation Will Be Stimulated After Coronavirus

Published / Last Updated on 24/05/2020

We expect inflation to remain low and even go negative i.e. deflation (prices falling) over the coming months. 

Central banks and governments will be fearful of deflation and will no doubt cut interest rates to negative and encourage people to spend more money.  

Why would they do this?  If inflation goes negative, the economy effectively dies.  Why would you buy a television, car, clothes, paint or anything today if you know it will be cheaper next month?

Deflation means an economy can self implode.

In addition, if a period of sustained inflation is held e.g. 5% pa, that’s a straight inflation rate over 10 years of 50% or when compounded over 10 years that’s just short of 63%.  If central banks and governments can force a period of 5%pa inflation over a 10 year period, this would effectively devalue government debt by 63% without ever repaying it.

Consider buying inflation hedged investments and assets for the long term:  property, index linked bonds, gold, other precious metals and commodities.

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