High inflation has been hugely problematic over the course of the last few years, as government policy has interfered with the free market to such a great extent that people are gradually losing trust in their local currencies at a faster rate. The central bank response to this has added further complications, in that they are continuing to raise interest rates in order to try restore some degree of trust, which has in turn negatively impacted asset prices.
Nevertheless, there are some tentative signs that inflation may now be coming down and has already peaked.
High inflation has compelled the Federal Reserve to raise interest rates
Inflation over the course of the past few years has meant that the Federal Reserve has been forced to raise interest rates.
The Federal Reserve’s balancing act between triggering higher levels of unemployment in order to tame inflation has thus far proved relatively successful, in that Powell has managed to avoid an entirely cataclysmic break down of the stock market whilst also managing not to let inflation become too exacerbated.
China is now exporting inflation rather than deflation
However, it isn’t just domestic factors that have a significant impact on inflation, as there are also external parties that are significantly changing the cost of capital and value of fiat currencies worldwide. One of the main disturbances on the horizon in the coming years will be the change in China, as they switch from exporting deflation to the world to exporting a high degree of inflation.
One of the main concerns about the easing of lockdowns in China is that the aggregate demand for goods and services will once more be on the rise.
Whereas 18% of the world’s population have been locked down over the past few months, this is set to change as the first signs appear that their lockdown policies are now easing somewhat.
This means that China is to revert from a situation in which inflation was heavily depressed into a situation in which they are consuming and importing far more.
More data about inflation will be available from Wednesday
The next round of inflation data for the US is set to be released on Wednesday, and the expectations are overwhelming that the figures will come in lower than the previous data.
This is promising, as inflation is a scourge that has been damaging every sector of society and caused a lot of unrest thus far even though it is still only in the single digits (according to CPI metrics, which are notoriously manipulated).
Lower inflation is bullish for crypto
Lower inflation means that the Federal Reserve has more room to manoeuvre when it comes to further rounds of stimulus, which the Democrat Party are largely in favour of, even though it will most likely lead to further inflation (which is extremely politically unpopular).
There are many who believe that the lower inflation could be hugely positive for the crypto markets, as the Federal Reserve begins to feel more confident in the possibility of lowering interest rates once more.
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