For most people inflation is a dry, arcane, academic argument. For those who do pay attention, inflation has often taken on the role of an imaginary “bogeyman”- always lurking in the shadows, but never making an actual appearance. However, if inflation does indeed break out there will be real-world consequences for consumers and businesses.
The most important lesson from Economics 101 is that prices are ultimately decided by supply and demand. While academics and policymakers will argue endlessly about the causes and effects of inflation, most people agree that ultimately supply and demand factors will drive price fluctuations.
So what is driving the macroeconomic supply and demand today?
Most of the post-pandemic debate has focused upon the demand side. Certainly, there are many significant drivers of demand:
The supply-side shows signs of stress as well.
In short, prices are feeling pressure from both the supply side and the demand side. It is no surprise then that people are fearing a return of inflation.
Have those fears been justified by the data?
Marc Odo, CFA, FRM, CAIA®, CIPM®, CFP®, Client Portfolio Manager, is responsible for helping clients and prospects gain a detailed understanding of Swan’s Defined Risk Strategy, including how it fits into an overall investment strategy. Formerly, Marc was the Director of Research for 11 years at Zephyr Associates.