The case for structurally higher inflation – and its impact on rates and portfolios

IN SO many ways, the period after World War II was one of unparalleled success. Coming off the back of the Bretton Woods system, economic growth was strong and inflation was moderate.

The period also witnessed a growing liberalisation of the global financial system. The world became increasingly connected and interdependent, as capital controls were loosened, resulting in a massive private credit boom.

However, the impressive growth rates of this period couldn’t possibly go on forever. There is no general desire in most Western democracies to live within their means and reduce spending. Rapidly falling prices do not work in a democracy, as lower wages and profits – even if they rise in real terms – would be politically intolerable.