What will happen to world prices in 2021?
Now that many countries are beginning to recover from the pandemic, restrictions are gradually being lifted. But fiscal and monetary policies in most countries will remain soft for the coming year.
The accumulated "surplus" economy of the world population during the pandemic is estimated at more than $3 trillion. All this leads to the fact that global demand is growing faster than the supply is being restored - inflationary pressure is growing. As a result, global material prices have risen significantly, 68% higher than a year ago.
Inflation risks are already growing in many countries. Banks in Turkey and Brazil have recently raised rates due to rising inflation. Today, the Bank of Mexico kept the rate, but expressed concerns about inflationary risks.
Nevertheless, I would not yet ring the bells and expect an unprecedented double-digit price increase for four reasons:
1. As the economy opens, the supply of goods gradually increases. By the end of 2021, supply with demand will have to balance.
2. The development of world trade, online trade, low inflationary expectations should restrain the growth of world prices.
3. There is a high chance that the current third wave of morbidity is, alas, not the last. I believe that in those who had been ill last fall or winter, the level of antibodies by the end of summer will already be low. How long the vaccines will last is a big question. Do not forget about new strains. The result is that we will continue to get sick. Next fall, it is quite possible to expect new waves of morbidity and new lockdowns. This virus is with us for a long time.
4. Huge debts have accumulated from corporations, governments, and the private sector. Although household debt is a significant problem, for the most part, only for developing countries, in developed countries it has been taken over by the state. In our country and in a number of other countries, where the state could not support business and the population as much as, for example, in the USA, Germany and Canada, the impoverishment of the masses increased. This will, on the one hand, slow down the economic development of these countries, and on the other hand, hinder the growth of inflation. When the broad masses are very poor with money, it is extremely difficult for inflation to raise its head.
Output? In the next few months, global commodity prices will gain momentum. There is a big chance that the global inflation may stabilize. However we cannot be sure that supply chain disruptions and their pressure on prices will not persist with us for a longer period.
Regardless of which bonds you keep your money in, no one is immune from inflation today.
