A nightmare 1970s scenario for investors is edging closer
With inflation front and centre in the financial news, many are asking whether we might see a return to the 1970s. Shortages, double-digit inflation, stagnation – it is certainly not a nice prospect. So it is tempting to take comfort in the view that at first glance at least, the inflation we are currently experiencing looks likely to be transient, meaning we need not worry too much about runaway inflation.
This is certainly the judgement of the central banks, and one their representatives have repeated on many occasions. But it is also the conclusion that my former colleague, James Montier, and I came to from our recent study of the “reopening” of the British economy after World War II. What we saw then were sharp, but one-off price rises in a variety of products that had been subject to rationing during and after the war.
True, the sharp shocks to used car and rent prices, which we have seen in 2021, are a different beast to the rising egg and cheese prices of the late-1940s, but the underlying dynamics appeared to be echoing one another. As pent-up demand surged, prices responded briefly and then –
