Where is Inflation Going? An Economic Historian Gives His Answer

The Spotlight

1 minute read

Sep 10, 2021

Economic historian Niall Ferguson delivering a speech about rising inflation and how investors should get prepared for it

Is today’s rising inflation mimicking a time when a sudden jump in inflation took investors by surprise? Top economic historian Niall Ferguson might have the answer.

Even though at a slightly slower pace, inflation in the United States (and elsewhere) is still alive and kicking, yet the Fed remains unconcerned, sticking to its mantra of “transitory inflation”.

But among the growing number of voices opposing the Fed’s position, there is one we find particularly interesting:

Meet Niall Ferguson, a Stanford University fellow and former professor at Harvard, LSE, NYU, and Oxford University, with a specialty in… Economic and Financial History.

What is he saying?

“How long is transitory? At what point do expectations fundamentally shift? … My sense is that we are not heading for the 1970s but we could be rerunning the late 1960s, when famously the Fed chair then, McChesney Martin, lost control of inflation expectations,” Ferguson said.

What happened in the late 60s, exactly?

A sudden and unexpected inflation jump: core consumer price inflation rose from 1.3% in 1965 to 3.5% in 1967, and then went on to 6.2% in 1970 – a bit of a nasty shock to investors who failed to prepare for higher inflation.

The situation then evolved into what became known as the Great Inflation of the 1970s.

Why did it happen?

According to some economists, there were several inflation triggers in the late 1960s in the US:

  • The cost of the Vietnam War;
  • Major state-induced spending as part of President Lyndon B. Johnson’s “Great Society”;
  • Consumer price hikes due to the 1970’s oil crisis;
  • Loose Federal Reserve monetary policy.

…which have an eerie similarity to those we can see today all over the world:

  • The cost of the Covid-19 crisis;
  • Major state-induced spending as part of infrastructure and economic recovery plans in Covid-affected nations;
  • Consumer price hikes due to global supply chain disruptions;
  • Loose Federal Reserve (and central banks) monetary policy.

What’s the bottom line?

In the 1960s, nobody saw inflation coming and investors failed to prepare. Today, Ferguson thinks it could be back…

Talking about history, this reminds us of that old Churchill saying:
Those that fail to learn from history are doomed to repeat it.” 🤓


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