It’s a question that divides the financial world: Is inflation returning? One camp contends that governments’ no-expense-spared response to Covid-19 has put developed economies on course for rising prices on a scale unseen in decades. The other says the pandemic hasn’t altered the dynamics of the past dozen years or so when deflation, rather than overheating, has been the big threat. A surge in inflation would pressure authorities to curtail pandemic relief efforts, strain workers trying to keep up with household bills and risk eroding more than $40 trillion of retirement savings. There’s been little sign of such a surge, and most economists aren’t expecting one, yet global markets have priced in inflation accelerating to multiyear highs. Those expectations have been spurred by the U.S. Federal Reserve’s new determination to allow inflation to run higher during recoveries and the prospect of more stimulus spending under U.S. President Joe Biden. The data that will ultimately settle the question could take years to trickle in, leaving investors and the public to weigh the arguments. Here are some of them:

Case for Inflation: Money Supply

Inflation is always and everywhere a monetary phenomenon, the free-market economist Milton Friedman famously argued. In other words, there’s too much money available for chasing the goods and services on offer. Those who support this widely held belief say the multitrilliondollar wave of money created by governments and central banks to fight the economic fallout of the virus will, sooner or later, wash through the whole economy and push prices up. There was great fear that massive stimulus would trigger a surge in demand after the 2008 global financial crisis, but it never happened; much of the Fed’s new money stayed on banks’ balance sheets. This time, the cash is making its way into the pockets of consumers and companies.

Case Against: Money Velocity

Prices are affected by how often money is used, not just how much of it exists. That’s one explanation for subdued inflation since the financial crisis, even as central banks cranked up the printing presses. In the U.S. the “velocity” of money — the frequency with which it changes hands, as people use it to buy goods and services — fell off in 2008 and never recovered. In 2020, it collapsed to unprecedented lows, about half the level seen in the prior decade. Money hoarding because of the uncertain outlook partly explains the phenomenon.

Case for Inflation: Households are Flush

Spending may bounce back faster than it did after 2008 and drive prices higher because a more aggressive policy response has cushioned the blow for households. Governments provided substantial support to workers who got furloughed or fired. More than 150 million Americans received checks worth up to $1,200. Most are set to get another one under Biden’s proposed $1.9 trillion relief plan -- a package that’s big enough to push the economy past its sustainable speed limit, according to many economists. Fiscal stimulus, unlike the monetary kind, can go directly into people’s hands — where it’s likely to get spent. What’s more, rising stock and housing markets helped add more than $5 trillion to the net worth of U.S. households in 2020.

Case Against: Households are Cautious

Incomes may have held up in the months following the coronavirus outbreak thanks to government intervention, but savings rates were higher. That’s partly a function of lockdowns that left restaurants and bars shuttered and air travel widely shunned. But even as economies reopen and consumers have more options, worries about health and employment prospects could mean they stay cautious about spending. Some 10 million Americans remained without work at the start of February because of the fallout from the pandemic. Almost 40% of the unemployed were jobless for 27 weeks or more, and uncertainty about the virus and rollout of vaccines may restrain hiring and activity.

Case for Inflation: Loose Central Banks

The longtime guardians of price stability are more willing than ever to loosen the reins, a trend emphasized by the Fed’s unveiling in August 2020 of a new approach that lets inflation overshoot and stay there -- so it averages 2% over time -- before borrowing costs must be raised to cool things off. Loose monetary policy has been tried before in the campaign to gin up some inflation, and fallen short. Now, though, central banks are committing to make up for some of the inflation lost during downturns.

Case Against: Loose Labor Markets

One rule of thumb for policy makers is that there is a trade-off between inflation and unemployment, which, plotted on paper, produces what’s called the Phillips curve. The idea is that prices will only face sustained upward pressure when the economy is using all its resources — including labor. Yet even optimistic forecasters say it will be years before the U.S. is employing as many people as it was in 2019, when the jobless rate was the lowest in half a century. Factoring in lower labor force participation during the pandemic, Bloomberg Economics estimates the U.S. unemployment rate to be 9.1%, rather than the 6.3% rate announced in the January jobs report. An economy that isn’t using all its available resources such as labor typically has room to grow without triggering inflation. And a key lesson from the long expansion of the 2010s was that those resources were deeper than previously thought.

Case for Inflation: Supply Shocks

There’s already evidence that disruptions to supply chains are pushing prices of certain goods up, as shortages arise in key sectors including semiconductors, shipping costs spike and energy prices rise. Governments have also pressured businesses to bring home manufacturing of strategic goods (masks, medicine, computer chips) even when that makes them more expensive. “Trade, tech and titans” — cheap imports, technological advances and corporate giants with the power to suppress wages — have driven disinflationary trends in recent decades. But the same trio also gets blamed for a widening gap between rich and poor and faces political scrutiny that could drastically change inflation dynamics.

Case Against: Spare Capacity

The fight against Covid-19 has often been compared with an actual war, the kind of disaster that historically has triggered inflation. But there’s an important difference. Military conflicts wreck the supply side of the economy, like factories and railway lines, leading to bottlenecks and shortages that push prices up. The coronavirus has left those facilities intact -- even if they’re not all being used right now. In a pandemic, it’s demand that takes the main hit, says Alicia Garcia Herrero, chief Asia Pacific economist with Natixis SA. “Capital is not destroyed or depleted, so it is much easier to end up with excess capacity,” she said.

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