Expect Inflation To Accelerate? Here's 8 Reasons To Expect Decelerating Inflation

Lacy Hunt at Hoisington Management has some interesting thoughts regarding the inflation debate.

Case for Decelerating Inflation

In its Quarterly Review and Outlook for the First Quarter of 2021 Lacy Hunt makes a case for decelerating inflation.

Contrary to the conventional wisdom, disinflation is more likely than accelerating inflation. Since prices deflated in the second quarter of 2020, the annual inflation rate will move transitorily higher. Once these base effects are exhausted, cyclical, structural, and monetary considerations suggest that the inflation rate will moderate lower by year end and will undershoot the Fed Reserve’s target of 2%. The inflationary psychosis that has gripped the bond market will fade away in the face of such persistent disinflation.

After declining 5.2% in 2020, or the most since World War II, world-wide real per capita GDP is estimated to rise 4.7% in 2021. The United States will perform even better, rising 6.2%, after a contraction of 4.9% in 2020. The U.S. growth rate this year could be the fastest since 1984 and possibly even since 1950 (Chart 1).

Five considerations suggest that such growth is not likely to lead to sustaining inflation. 

Lacy said 5. I added a 6th bullet point from his discussion, then added 2 more points of my own. 

Six Reasons to Expect Disinflation

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