As I am sure you have, I have been paying a lot of attention to the rise in prices. Whether buying groceries or receiving quotes on toy production, costs are increasing at rates not seen since the 1980s.
Will inflation be with us for a while? If you read the papers, conjecture is all over the place. The government sees inflation as transitory and part of the recovery. On the other hand, I have spoken recently to several leaders in finance who believe inflation will be with us for a while.
But what does history tell us? One place to look is the 1920s, a decade uncomfortably similar to the 2020s. Both decades followed an epidemic, The Spanish Flu in 1918-1919, and the Cornavius epidemic of today.
In both cases, the economy rebounded after a brief recession. According to the National Bureau of Economic Research:
The U.S. officially climbed out of a recession in April 2020, concluding a pandemic-driven economic contraction that lasted two months, making it the shortest on record.
U.S. Coronavirus Recession Lasted Two Months, Ended in April 2020, Official Arbiter Says, Hannah lang and Bryan Mena, Wall Street journal, july 19, 2021
I looked for data on inflation in the 1920s. What I found, a bit to my surprise, was that in the U.S., the decade of the 1920s was neither inflationary nor deflationary; it was flat. Yes, there were inflationary years and deflationary ones, but it evened out at the end of the ten years.
What was true for the U.S., however, was not true for all countries. Some countries in Europe, most notably Germany, suffered from hyperinflation.
So, what is the answer to whether inflation will be with us for a while? The prognosticators say inflation. History says to expect a bit of both deflation and inflation. What do I say? I predict inflation will be with us for the next two years.
If I am wrong — forget you ever read this.
