Inflation or deflation?

Reuters recently conducted a poll of 161 economists asking just this question. Will we see inflation due to trade friction and shifting supply chains or is it going to be deflation due to weaker demand? The results of the Reuters survey were as follows with only 27% of economists seeing the prospect of inflation in a post-viral global economy.

The consensus view was that over 70% of more than 160 economists see the biggest threat to a post COVID-19 world as being deflation and lower prices. If this proves to be the case this is only going to further increase the problem for central banks who have struggled with low inflation for years now. Taking a look at developed markets expectations for inflation below serves to demonstrate the point. Low inflation expectations appear to be here to stay for some time:

Inflation is always expected but never seems to arrive. To coin a phrase from the author C.S Lewis, ‘it’s always winter, but never Christmas’. Will central banks keep targeting inflation levels or will a new target have to emerge? It is tricky to know how to solve the inflation problem, as inflation was expected to come after QE, but never did. Or rather it did come, but in an unexpected form by inflating stock, property and luxury goods prices.

Precious metal safe havens

If inflation does come the place of haven is into gold and silver. More and more investors are flooding into the precious metal during uncertain times. Gold ETF’s are rising at record levels and here is a piece with some of the comments to CNBC last week on gold prices. Silver is also offering a nice technical entry point on a break of a bull pennant. Inflation, or just the fear of it, maybe enough to push silver higher in the coming weeks. See the chart at the top.