Off topic inflation outlook.5 Dec 2021 11:44
The talk at present is of two camps seeing inflation at either 4% or 2% in the second half of 2022. The difference is mainly wage embedded inflation and supply shocks ending. However, the elephant in the room is being ignored completely imop. The fact is either doing nothing about climate change has a huge random environmental and economic cost or the cost of implementing adaptive changes has a significant cost impact. There is no escape either way. USA has a past habit of including hurricane repair and events like it delivering recovery costs as a growth of GDP as citizens struggle to get back to where they were before with interruptions in their work, the added future insurance costs and the costs of items not insured. In essence the GDP has given no productivity gains at all and is a false measure of improved wealth in most circumstances. The only one's to gain are those employed doing all the repair work and the workforce available to do those tasks has reduced. The same applies to the true cost of carbon intensive industry delivering waste plastic bottles dumped all over the planet and not factoring in the negative GDP to clear up the mess.
Energy costs are likely to rise significantly in the UK which needs more power stations to be constructed on the National Grid. Many other countries are in the same position. Building more wind farms works well when its windy, but the demand for energy with carbon reduction is not going to be cheap as it has to be reliably sourced. This in turn will hit manufacturers and gradually, as funding for the oil energy sector reduces, a desire to use long lasting products then cheap throwaways may need to happen. This again is front loaded with heavy inflation although it declines sharply in future years as real productivity, environmental improvement and climate security if possible gets delivered.
I therefore conclude that inflation in reality is around for longer than expected, not just for the reasons of certain countries inflating away some of their debt, but also to deliver other changes the world will need or will face if not meeting those needs at all. I therefore believe 3-4% inflation is going to be around for a lot longer than people will expect and that gradually like in 2025 interest rates finally get normalised again to 3-4%. In relation to CEY and gold, I therefore see things as likely to be stable for the next two years or so. In 7 months we shall find out if my opinion is broadly in line with events.
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