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Poking The Inflation Monster - The Parts Of The Beast


  • We start the discussion on inflation by bringing you the analysis of the tried-and-tested forces of inflation.
  • We go over how the three major forces that control inflation are intersecting today.
  • This is Part 1 of a series we are writing on risks of inflation.
  • We set up Part 2 of our series where we will explore the bigger risks for even higher inflation down the line.
  • Looking for a portfolio of ideas like this one? Members of High Dividend Opportunities get exclusive access to our model portfolio. Get started today »

Co-produced with Trapping Value

We are currently in a very low inflation environment that is likely to remain with us for the next 24 months. However, following COVID-19, a perfect storm is brewing that would very likely result in higher inflation as soon as the year 2022. This inflation could be very significant and erode your savings. This is Part 1 of a series of articles whereby we explain why inflation is set to go higher (or possibly much higher), and how to hedge against it.

With COVID-19 being firmly the story du jour, you could be forgiven for focusing on little else. We, however, have also been noticing an economic indicator rearing its expensive head, the possibility of inflation. We will tell you why we have started thinking about this in earnest. We will also give investors a brief primer on the forces that are intersecting to create inflation and those that are counteracting it. In a series of articles, we will break down what we think the outcome will be and also stress the time frame over which we expect a resolution.

Where Exactly Is Inflation?

The pandemic has created an extremely sharp pullback in demand for most items. We did see the initial stockpiling effects as stores ran out of essentials, but that was simply a pulling forward of demand. On the whole, demand has cratered, and consumer spending, even assisted by huge government spending, has plunged. Hence, it is no surprise that we are seeing every single aggregate inflation measure collapse. The Consumer Price Index, or CPI, (excluding food and energy) showed its biggest month on month drop.

Source: Bloomberg

Based on that, investors must be wondering why we would even touch a topic like inflation when the opposite appears to be the path. That is a key

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This article was written by

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I am a former Investment and Commercial Banker with over 35 years of experience in the field. I have been advising both individuals and institutional clients on high-yield investment strategies since 1991. I am the lead analyst at High Dividend Opportunities, the #1 service on Seeking Alpha for 6 years running.

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