Why is there inflation? Where does it come from? Is our inflation going to go away? Is it going to get worse? In this Blockworks Macro/On the margin interview with Lyn Alden, they go deep into the sources, history, and ways to deal with inflation.
What's the future of inflation? Being a futurist/economics geek, I watch several hours of financial videos a week. Not way off conspiracy stuff, but the serious financial bloggers. There's a ton of good information and opinions out there. But the economy is in never neverland these days, after all the chaos of 2019-2023. So there are a lot of smart people, with different backgrounds, trying to make sense of today's wacky economic world.
My take on inflation is that we will see the official CPI inflation number drop down more, over the next several months. On one hand, it's cool to see the inflation rate go down. On the other hand, I think it's going to continue to drop because of our slide into a major recession. The official CPI inflation rate peaked at 9% annually, several months ago. The rise in interest rates has helped slow the economy, and the official CPI rate is 4% now. I think the credit crunch (banks holding back on giving loans) will steepen this coming recession, and the CPI rate will likely drop down to 2% to 3%, and maybe even go negative, by early 2024. But the cost is a gnarly recession, lots more people losing jobs, and hard times for most of us.
So it appears now there will be a severe recession soon, and the slowdown in real estate, consumer spending, and other areas, will drive inflation down quite a bit more. Home prices are dropping in several areas, rents may drop some in many areas, and cars, collectibles, and even gas prices will probably drop in many areas over the next several months. Food prices will probably stay elevated.
Looking at a longer term picture, the government is already bailing out the banking system with the BFTP program, and we will see more bailouts to the banking system, with new money being created and surged into banking, financial markets, corporate and treasury bonds, but not to us average people. This money will... you guessed it... help create more inflation down 12-18 months from now, and beyond that.
So the most likely scenario looks like falling CPI inflation, overall, for the next 6-9 months maybe. It will probably hit bottom in early to mid 2024. But then the recent bailout money, and more bailouts ahead, plus other major factors (like continued deficit spending by the U.S.) will send inflation rising again. The next rise in inflation should begin mid to late 2024, and continue well into 2025, and beyond. That appears to be the most likely scenario from here, all combined with The Fed lowering interest rates in late 2023 and/or 2024, and a really serious recession. This is my personal opinion on it. Do your own research, and listen to the video above to come to your own conclusions.
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