Whipping Inflation into (a New) Shape?

Inflation is crucial for markets, but we lack an accurate economic theory of what causes it, leading to modelling and policy/forecasting errors. We draw a framework of the structural factors currently driving global inflation: a ‘bullwhip’ effect; the Fed; fiscal policy; speculators; psychology; Chinese demand; labour vs. capital; and the role of supply chains/the distribution of production. We then look at how these can combine, and which are the ‘prime movers’ if inflation is to return. This approach shows the global inflation outlook is currently more about (geo)politics/geoeconomics than it is about economics or econometrics. We conclude that when encompassing this logic, the range of potential future inflation outcomes varies hugely.