Inflation is Here: Macroeconomic Update

Updated: Mar 22, 2021

Much stock market talk throughout February was centred on the final return of inflation to global

economies. Inflation has escaped us for years, and several market commentators are weighing in with their explanations as to why. In my opinion, the dawn of new technologies has made it difficult for prices to rise over a period of time. For instance, eCommerce now makes it possible to price check almost any good or service in minutes. This has the knock-on effect of making companies very competitive on prices and consumers very sensitive to price rises. Traditional economic thought would explain that low-interest rates and easy monetary policy create inflation due to more money being spent in the economy (more demand for goods pushing prices up). However, in recent years, low rates and easy access to capital has had a seemingly reverse effect, where new upstart companies can easily raise capital and compete with incumbent companies on price (if I had a penny for every company currently operating at a loss in order to 'grow scale’ I would be a very rich man indeed!). When a company operates at a loss they are essentially subsidising a product or service for a customer. As a customer, you should be very happy if you are enjoying products and services from a loss-making company, as investors are essentially paying for you to use a service for less than its real cost. Ever wondered why your Uber journey is so cheap? Whilst we have created a system that allows for short-term private subsidies to cut costs for

consumers, this is actually very destructive for incumbent businesses (ask the London Taxi drivers

how they feel!).


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