by Patrick Fearon-Hernandez, CFA | PDF

One key worry for investors these days is whether fiscal stimulus, loose monetary policy, and accelerating economic growth will spark runaway inflation.  That concern has been a major factor in driving down fixed income prices and boosting bond yields since the start of the year.  However, we’ve been arguing that any acceleration in consumer prices this year is likely to be fleeting.  Much of the expected rise in inflation will simply reflect “base effects” as current prices are compared to the weak prices at the beginning of the coronavirus pandemic one year ago.  Despite recent supply chain disruptions, such as the February freeze in Texas and the grounding of the Ever Given container ship in the Suez Canal, a lot of excess industrial capacity and unused labor exists in the U.S. and other major countries.  The overall high availability of resources should help keep a lid on inflation for some time to come.  In this report, we discuss yet another factor that will probably hamper inflation: population aging.

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