Inflation Is Likely Or Not?

Inflation at modest levels is certain. At least for a while.

There are several things happening

  1. Supply chains are not delivering “Just-In-Time” inventories. That leads to other product lines going down and anyone who depends on those will be without too. The supply chain is far more than a one-step program.
  2. Employers are having trouble finding employees to fill their job openings. There are complex reasons for that. Some involve government programs. Others involve an aging workforce who are having trouble getting enthusiastic about getting a job. Others still, because employers did not survive the shutdowns.
  3. Some unions are using the peculiar circumstances to demonstrate their powers. Dock workers in California and teachers everywhere see an opportunity.
  4. Governments are busy proving they are incompetent to govern even though they are very adept at playing politics. People prefer they govern well. If they did they would get re-elected without trouble. But that is not part of their skill set.
  5. People look around and see ambiguity about their future. Ambiguity forces them to wait and see. Banks are having trouble lending. Why? Not because people can’t afford the interest, but because they can’t see their ability to repay the principal. Predictability matters.

Could it become hyperinflation?

Hyperinflation conditions are quite specific. Many people think they arise from printing money. If you go and look, you will find the inflation starts for other reasons. The printing of money comes secondarily and as a response to minimize the problem.

It is important to notice how the International Monetary Fund defines hyperinflation. Sustained inflation at more then 50% a month. That is higher than we can even imagine. If something cost a dollar on January 1 it would cost $129.75 on December 31. and $16,320 a year after that.

The famous hyper-inflation examples we have seen include:

  1. Germany in 1923
  2. Greece in 1944
  3.  Hungary 1946
  4. Yugoslavia  1994
  5. Zimbabwe 2008 and apparently, again now

Brazil and Chile experienced serious inflation but not quite hyperinflation. More recently still we have Venezuela.

What can we learn from all those?

For the true hyperinflation, the economy was destroyed by war. Zimbabwe was a collection of things all of which destroyed their economy. They enjoyed an annual inflation rate of 79,600,000,000% in November 2008. I suppose the less significant digits wouldn’t matter to change the meaning. They got it under control for a while but inflation had reappeared at high levels again by 2019 and 2020. (737%)

Inept government, destructive programs, international trade problems, land reform, and the inability of banks to lend are each part of the cause in Zimbabwe. The economic destruction came before the printing of money.

The serious but less than hyperinflation results followed the same pattern. First damage to and near destruction of the economy, fewer goods, and higher prices for what exists. Governments meddling with the problem. Banks failing and being unable to perform their banking duties.

Black markets are the only markets that function.

Can it happen here?

Sure. Anything is possible, but probable?  Not so sure.

The key will be the extent to which the economy is harmed. Some of it may be intentional, but I would hope there are enough sane politicians to deal with that. On the other hand there is no reason to believe that competence will appear. Any programs will involve printed money and uneven outcomes from the effort.

Think this through. If inflation is 50% a month, most businesses will not be able to survive. The product that replaces what they sold at an old price costs more than that to replace. That’s not sustainable. In service industries it is the same. If minimum wage goes up 50% a month, how can you plan? Maybe it will be 80% next month. In Brazil, workers were paid each day and spent all their money before day’s end. Why? Because it was worth less the next day Holding money or anything denominated in money was the road to bankruptcy. Not because you had less money, but because the money you had was valueless. In hyperinflation or even high inflationary times, it is not the goods or wages that are not worth the money, it is the money that is not worth the money.

Worst of all there is no way to get ahead of it once it starts to roll. Wages will not keep up and goods will change in price every day. Maybe every hour. At the height of Zimbabwe’s inflation, 79 billion percent a month, is more than 3% per hour. I suppose people would run to the cash register at the grocery store.

The takeaway

Serious inflation is not impossible, but it is unlikely. Large economies are resilient. they could harm some of it, but not likely all of it quickly

Be alert. Floating rate loans will be a problem. Fixed rate may look pretty good. Paying 3% when inflation is 8% works in your favour.

Equity investments look like they should do okay. Many won’t. Your home for example. You must have someone available to sell too. Even if you sell it, you have to live somewhere and the prices for rent and houses will be rising quickly.

Precious metals might do well. Governments confiscated gold the last time. Silver did well.

The stock market will be unpredictable. Who will have money and want to invest it that way.

Bonds and term deposits will be in for serious trouble.

Think ahead. Have an emergency plan that implement early. You should not panic, but when you must panic, panic first.


I help people have more retirement income and larger, more liquid estates.

Call in Canada 705-927-4770, or email don@moneyfyi.com

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