Are we heading into (hyper)inflation?
Money printers go brrr but no sign of inflation?
Guys, we’re a year since the beginning of the pandemics. We want to go out and have a nice dinner in a restaurant or go on vacations in sunny places. But no we cannot do that. We are stuck in our home doing our work, eating, chatting, buying things from home. So basically what do we do with our money? Well, we don’t spend them. Sorry if you spend them anyway on other things guys but in this article, I’m talking about the 30 years and more people who don’t have interest in the latest sneakers of Nike or going crazy about the latest Balenciaga shirt. Yes in this case well chances that you’ll be broke anyway with or without the restaurants or holidays.
So it’s been a year that people stop spending. So what do they do? Exactly they save the money. But the bank doesn’t give any interest in your saving. So what do you do? Their bank advisors advise them to put the money on ETFs or into stocks. Some learn to buy crypto as well. Others buy real estate. This leads to asset prices rise because there’s a rise in demand and the supply stays the same.
But why doesn’t the CPI (Consumer Price Index) move? Why does it stay at around 2% annual inflation rate target set by the Fed?
The asset prices are not included in the calculation of CPI. So there could be a 1000% price increase in real estate or in tech stocks, as long as the price of a bottle of coke stays the same at around $1.5, the CPI says there’s no inflation.
But what will happen when people can start going out again? When people can start going on holiday? People will start selling some of their stocks, cryptos, or even their real estate. They will cash out. This will make a down pressure on the prices. The price of consumer goods will rise (because there will be more demand). So naturally, the CPI will rise as well. There will be an alert signal for the Feds. The inflation rate has gone well above the target range of 2%. They will have to do something to prevent inflation from getting out of control.
Diversification of asset offerings
Do you know the NFT? Yes this digital artworks that can be in the form of a tweet, a meme or anything can be bought and exchanged. It become a new form of wealth storage. There are so much money that asset categories have to expand as well. This contribute to keep the CPI controled actually. Since the money goes to these assets, the consumer goods price stays stable.
So yes if you are wondering why isn’t there a sign of inflation yet, well let’s see when the restaurants are opening, when people start spending again. At that time, logically we will see asset prices drop and CPI index rise. But once again please take my opinions with a grain of salt. I’m not an economist. If you’re really interested in this topic, you should look for Ray Dalio. He has very interesting views on debt cycles. He has a fund called Bridgewater and his investing style is considered as a value / momentum investor like Warren Buffet and Charlie Monger.