Will COVID-19 bring inflation or deflation?
Inflation or deflation?
Reuters conducted a poll of 161 economists asking what is the greatest risk once the pandemic subsides. Is it inflation due to trade friction and shifting supply chains or is it deflation as a result of weaker demand? The results were as follows with global breakdowns on the right hand side:
The consensus is that over 70% of more than 160 economists see the biggest threat to a post COVID-19 world is deflation and lower prices. This is going to increase the problem for central banks who have struggled with low inflation for years now. Take a look at developed markets expectations for inflation below which shows the issue:
Inflation is always expected, but never seems to arrive. 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 the form of inflating stock, property and luxury goods. This in part explains the inflated stock prices we have seen even as a global recession looms.
Precious metal safe havens
If inflation does come the place of haven is into gold and silver. Gold etf's are rising at record levels and here is a piece with some of my 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, may be enough to push silver higher in the coming weeks. See chart below: