Inflation was supposed to be transitory. A few years later it is still high almost everywhere.
What did the mainstream economists and the central bankers told you right after COVID? First it was there won’t be any inflation. Then it was inflation is just a supply chain issue, that won’t last. Then it was don’t worry as soon as China is out of the COVID lockdowns everything will be fine.
Obviously none of that came to pass.
The truth is that economists don’t understand inflation at all. The phenomenon is much more complex that it looks on the surface. But with the amount of debasement that resulted from money printing during the COVID crisis the level of inflation we are seeing now is not a big surprise.
On the chart below each point represent year-on-year inflation for a country as of December 2023. Blue points are for countries where inflation came down compared to last month. Red points are for countries where inflation went up compared to last month.
As you can see most countries are way above the 2% inflation target that central bankers consider acceptable.
And the chart below doesn’t even include a bunch of outliers:
- Argentina +211%
- Venezuela +190%
- Turkey +67%
This data point on inflation (among other things) makes me doubt we’ll see a ton of rate cuts this year (which is what Wall Street expects).
If there is a recession sure, we are going back to a zero interest rate environment. But in the absence of a recession, I’m sceptical.
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