The past 40 or so years in the US have been a remarkable period of prosperity, growth, and stability, on average. They have also been a period of declining interest rates and inflation. It’s not a coincidence that both occurred together. A lower cost of money (lower interest rates), stable/lower prices (low inflation/disinflation), and broad stability are good ingredients for increased prosperity and growth. The past forty years haven’t been without periods of instability and concern, but the overall trend has been up and to the right.
Looking forward from today, it may feel like the prosperity and growth of the past 40 years are, well history and that the future is going to be very different. I know the same sentiment existed at various points during the past four decades during moments of crisis and extreme uncertainty. While the remarkable period of prosperity, growth, and stability we’ve experienced may be over (keep in mind it may not be over), it doesn’t mean the world as we know it is going to come crashing down all around us.
Looking at inflation, for example. We’re at levels that were last experienced in the early 1980s, a period of pessimism and concern. Inflation levels today are painful, especially to those whose monthly budgets are more sensitive to higher energy and food prices. So many people alive today haven’t experienced periods of high inflation and instability.
The truth is history is rife with periods of high inflation and instability. While I don’t have inflationary data earlier than 100 years ago, I know instability has been a hallmark of human history, primarily on a smaller, more localized scale. Global instability is a relatively new phenomenon of the 20th century.
Current inflationary trends are high in the context of the past forty years but are well within the range of outcomes of the past 100 years. Furthermore, periods of high inflation didn’t last for more than a few years with the exception of the 1970s. Most periods of high inflation ended in a recession, which a lot of people are pointing to today. If a recession is actually on the come, then inflation may not be with us for very long.