Inflation or Deflation ?

[insite]

As we nudge our way hopefully out of house arrest and back into the new normal are there any thoughts from the financial whizz kids amongst us as to short to medium term economic developments ?

Inflation ( hyper or otherwise ) or Deflation ?

[Snowy79]

With my limited knowledge I'd expect things to balance out whilst fuel prices are so low, maybe even a slight deflation for six months, as the World gets back to work prices will rise quite a lot I think as the demand for fuel increases and companies will be looking to make up their losses, many businesses will have folded and the supply chain seriously disrupted. 

[earthdome]

44 minutes ago, Snowy79 said:

With my limited knowledge I'd expect things to balance out whilst fuel prices are so low, maybe even a slight deflation for six months, as the World gets back to work prices will rise quite a lot I think as the demand for fuel increases and companies will be looking to make up their losses, many businesses will have folded and the supply chain seriously disrupted. 

My financial advisor concur's. First deflation then starting in the next year or two inflation. They also are of the opinion that the stock market recovery at this point is what they call a dead cat bounce. There is no underlying fundamentals to support it (except for the internet tech stocks). That as the economic recovery drags out longer than expected the markets will continue to be bearish. This wont be a V shaped recover or even a U. It will be more like an L.

Edited May 27, 2020 by earthdome

[AusExpat]

Whatever the banks decide is best for their balance sheets is the answer.

That is unless nearly all the world's countries can wrestle control of their money supply back from private banks known as The Fed in the US, Federal Reserve Bank in Australia, and various deceptively named variations in other countries. The IMF and World Bank are privately owned companies too. No wonder the world is in such a mess (and why you've always been better off investing in banks rather than storing your money in one).

Edited May 27, 2020 by AusExpat

[JJReyes]

Governments all over the world are printing money to prop up their economies. So it will be inflation.

[hk blues]

10 hours ago, JJReyes said:

Governments all over the world are printing money to prop up their economies. So it will be inflation.

Didn't they do the same in 2008 but inflation didn't jump that much?  Or did it? 

 

[GeoffH]

5 hours ago, hk blues said:

Didn't they do the same in 2008 but inflation didn't jump that much?  Or did it? 

A lot of governments did 'print money' (well electronically create it) during and for a while after the GFC.

I can't speak for all governments but inflation in Australia was flat or slightly decreasing during and preceeding the crisis but increased steeply some time after the GFC.

It has been suggested that a similar scenario might apply this time with a period of 'normal' inflation followed after a delay by higher inflation as the effect of the quantitative easing starts hitting the economy.  If anything, given the relative strength of the economic effects my guess is that the inflationary spike will be more pronouced (the post GFC spike in inflation was about 3%).

 

 

 

 

Edited May 29, 2020 by GeoffH

[JJReyes]

8 hours ago, hk blues said:

Didn't they do the same in 2008 but inflation didn't jump that much?  Or did it? 

 

In 2008, Central Banks were flooding the financial markets through their banking system in what was called, "Quantitative Easing."  As the situation starts to normalize, the expectation was Central Banks would slowly tightened.  Unfortunately, politicians loved all that money in circulation.  It was helping to create an economic boom.  So interest rates have remained low and everyone singing, "Happy days are here again..."

The problem today is, in addition to Central Banks, governments are flooding the market with printed money.  I have not followed other countries, but the United States government authorized a $3 Trillion giveaway with more to come.  My wife and I are happy to receive our $1,200 each directly deposited by the IRS to our bank account.  The expectation is more stimulus money to come.  Other government programs will allow us to reduce our 2020 tax obligation.  

This year should be okay with certain prices like food going up while buying a new car going down.  Wait till 2021.