Billionaire venture capitalist Chamath Palihapitiya says that he expects inflation to persist this year as a fresh narrative takes shape.
In a new episode of the All-In Podcast, Palihapitiya predicts inflation will not fall off a cliff as fast as people want it to.
“I will explan inflation in three different chapters, and we’ve seen the first two chapters play out. So 2021, chapter one, was all about energy inflation… It caused that initial spike in inflation, and then we had it come off…
2022 was really the story of goods inflation. All these prices and all of these things went up because the input costs went up, and we all had to bear the implications of that. But then that started to ebb.
Now, if you looked at the tail end of 2022, what I found super interesting was the number of articles I saw about wage inflation, whether that was Biden using an 1800s era law to prevent a railroad strike, the number of states that increased minimum wage [or] the trend around unionization. So in general my thought is that the pendulum is swinging very markedly away from capital and towards labor.
And as the labor participation rate stays low and continues to go down, and also it’s compounded by an unemployment rate that may go up, it’s going to be harder and harder to get people to do the work you need at the company you have unless you pay them more.
If that gets exaggerated, then inflation will stay where it is.”
The billionaire says his strategy will be conservative and likely centered around investing in government bonds as he expects inflation to remain elevated.
“I would have a combination of cash and the front end of the yield curve, so Treasury bills all the way up to two-year bonds. You can generate 4.5%, probably by the end of this year 5% pretty safely owning this stuff while you wait for things to become more certain. The way that I think about it is that I would rather miss the first 10% or 15% of a rally once we’re really done this stuff than try to overcorrect and try to pick a bottom.”
