Inflation or deflation, what comes next ?

Many economic experts talk about this topic since a few weeks. What do we see as a consequence from the worldwide pandemic? Will there be deflation or even (hyper)inflation.

Today I would like to present you my thoughts about this topic. So, if we look what we have at the moment we can clearly see that the people were cutting their spending in the last weeks/months since the worldwide pandemic begun. In my opinion this will lead to a short- till mid-term period of time of deflation. Even if the economies open up again, I really do not believe that the consumers will spend the same amount of money on goods or make up for deferred purchases. I don't think that this will be the case and that’s the reason why we will see this period of deflation or minimal inflation.

But then there is the other consequence from the covid-19 crisis. It's the realization that our world is far too "over-globalized" if you want to call it like that. This will lead for example to a process which includes that key technologies and survival-essential productions are to be relocated back to their home countries. Deglobalization could be soon the new reality.

This could lead to a process which could peak in above average inflation.

I personally look at it in the following way:

A progressive Deglobalization has the consequence that the supply of goods in many regions of the world will become scarcer. This supply gap could lead to a demand shock, which in turn leads to higher inflation than usual.

In summary, I see the following scenario:

  • short- to mid-term deflation

  • mid- to long-term (hyper)inflation