Charles Goodhart and Manoj Pradhan's recent publication 'The Great Demographic Reversal' might make for uncomfortable reading by those who have predicted continuing low rates of inflation, fuelled by a mixture of quantitative easing, high supplies of labour in the consumer manufacturing industries and global (as opposed to domestic or Western) demographics. Pointing out that we are now nearing a reversal of some of those demographics in parts of the developing world and entering a potential era of trade restrictions driven by new geopolitical rivalries, a potential tightening in the delicate relationship between labour costs and output and the end of a 20-year savings glut, the authors foresee a re-enactment of the policy dilemmas faced by Western governments throughout the 1970's.

Moreover, there appears to be a growing body of expertise which is suggesting that the inevitable rise in inflation postulated by Goodhart and Pradhan might be with us sooner than even they bargained for. As rates continue to slide in the light of the pandemic, businesses across the board are conversely pointing out considerable rises in their cost bases. The explanation for this apparent contradiction might be found in the inadequacy of the CPI - the globally accepted measure of inflation - to translate spending patterns during the Covid crisis, due to its focus on things like air fares, lodging and eating out (see https://moneyweek.com/economy/inflation/602132/is-inflation-set-to-return-and-should-you-be-worried).

Then there is the unknown impact of huge increases in government spending brought about by the crisis itself and how this might potentially devalue money in circulation. The FT's Martin Wolff takes up the story...