The biggest investment debate of 2021 is about the future of inflation. One side of the debate believes we’re entering a new period of sustained, higher inflation after 40 years of low and declining inflation. The other side of the debate believes that the high inflation readings we’ve seen in 2021 will prove fleeting, and that we’re destined to return to the low-growth, low-inflation environment we were in pre-pandemic. This isn’t a trivial debate, as the investment implications of either outcome are diametrically opposed. The question to ask is, “Is Inflation Transitory or Not?”
Inflation is the erosion of purchasing power over time, resulting in buying fewer goods and services with the same dollars. We might not feel the impact of inflation from day to day or even on a year-to-year basis, but the effect on purchasing power is visible over a longer time horizon. For example, a quart of milk cost $0.09 back in 1916; 100 years later, it would only buy seven tablespoons of milk.
Some folks have been stating this will be the “Summer of Love”, while others (the geeky ones) have been stating this summer will go down in the history books as the “Summer of Inflation”. But the real question is really if inflation is here to stay? A song comes to mind “Should I Stay or Should I Go Now” by the Clash in 1982.
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