2023-08-18 Markets
As some of you know, I’ve been skeptical of the possibility that inflation would soon return to where it was before COVID. My idea was that the historical long-term averages (broadly 2-4% per year) would eventually prevail. Two events now could force me to change my mind, at least temporarily. The first relates to Japan and the potential change in its monetary stance (already mentioned in these notes before); should the change in monetary policy manifest itself more forcibly we could have a situation where the risk of overdoing it – worldwide, not just in that country – goes up significantly. The second is the financial contraction in China which is already showing up in local price trends; here too the authorities need to be careful how to handle the next steps, since what happens in China is likely to have a big impact on goods prices across the globe. — Somewhat incoherently, markets this week were all in negative territory. If my worries on inflationary trends where embraced widely you should have seen better returns from bonds. — On the weather front, Western US is readying for it’s first tropical storm in many decades (see cover picture) while here in Continental Europe we are all chafing under unusual heat and mugginess.
[Cover: The New York Times]
[Cover: The New York Times]
