The Case For Secular Inflation

The Era Of Secular Stagnation Is Coming To An End

Inflation regimes often coincide with changing political regimes and agendas, much of which stems from the rise of populism and fiscal dominance. As a result of decades of globalisation and rising wealth inequality, we may well be entering a new regime - one of higher inflation and higher inflation volatility. These shifting trends all have the potential to make for a very different investing environment over the next five to 10 years compared to what we have become so accustomed to in recent decades.

These regime shifts do not occur at once, but over time. Indeed, the past five to 10 years have seen a number of secular trends seemingly shift direction in unison. Increased geopolitical tension, higher wages, shifting policies in favour of labour over capital, increased corporate capital expenditures, protectionism and re-globalisation along with a shift from monetary dominance to fiscal dominance all have the potential to create a decade of higher inflation and increased inflation volatility.

Herein, I will attempt to discuss these various trends and how they make result in a period of higher inflation, and how this could result in a very different investing environment going forward.

Wealth Inequality & The Rise Of Populism

The cycle of wealth creation and wealth distribution is as old as history itself. Power is transitory. Indeed, we have seen throughout much of modern human history the balance of power shift between labour and capital. Once the pendulum swings too far in favour of one, we generally see a slow but meaningful shift back toward the other. Unequivocally, the past 40 years have seen capital take center stage in place of labour.