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Lobnek Newsletter, July 2021

The Many Sources of Inflation

”Real knowledge is to know the extent of one's ignorance."

Confucius, (551 - 479 BCE), Chinese philosopher

 

Not too long ago the Fed and other central banks decided to expand considerable efforts on reinflating their respective economies. The arrival of the pandemic just served to reinforce the “urgency” of the matter, leading them to deploy quantitative easing and other aggressive measures similar to those used to counter the subprime crisis of the last decade. A perennial absence of inflation from the backstage then and now appears to have dimmed our collective memories of the economic hardships endured from the hyperinflationary years of the past. The unusually weak inflation level that the global economies have been enduring for more than a decade now is taking place as entire sectors and industries are being overhauled by a major secular digital transformation process that has accelerated with the pandemic.
 
Could it be that digitization of the economy is somehow messing with the traditional mechanism through which demand and supply dynamics affect prices?

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