https://blogs.cfainstitute.org/investor/2021/07/19/myth-bust...
High inflation attracts Fed interest rate increases which attracts bond investment over equity investment.
In the US, we now have a triple whopper of post-pandemic supply chain adjustment, tight labor market due to early Boomer retirement, and now war-related energy cost increases. I don't think the economists have updated their model fast enough. I'm thinking we're going to have "real" inflation for a while now.
If the Progressives get their way with the budget, it will be inevitable.
You can't have trillions in deficits without massive inflation.
The bill always comes due. There's no free lunch.
You empirically can, because the US has at times done so, but progressives (particularly MMT practitioners) not only recognize the relation between government spending balance, they hold up monetary effects like inflation as the only valid constraints on government spending balance, rejecting the idea that spending balance ought to be governed by the pretense of a fix purse that must be filled by tax or borrowing (the “fiscal” approach), while monetary concerns are controlled exclusively elsewhere on the system.
That assumes all the other variables remained the same. The 2008 banking collapse may have resulted in deflation without the big spending program, which just countered the deflation.
https://twitter.com/quantian1/status/1260387202871287809
Instead, inflation comes from energy shocks (70s) or supply chain shocks (now). And the current one is mostly because everyone started online shopping due to being stuck at home.
The disproof of that is straightforward. Have we ever had deflation from gluts? There have been several oil gluts since the 70's. No deflation.
It basically only happened once. One reason is that preventing deflation is the Fed's job and they've been doing it. Another is that for a wage-price spiral you need both things to increase; in the 70s we had wage spirals because we had a lot more union workers with automatic cost of living increase contracts. Losing those means inflation doesn't happen as fast, and workers don't exactly expect wage decreases the same way, so it's assymetric. (Japan does have wage decreases, and has been stuck in deflation for decades.)
Basic article:
https://www.frbsf.org/economic-research/publications/economi...
I.e. not oil shocks.
Compare to Argentina for a country that really fails at it.