4 Reasons to Not Fear Inflation in 2022

4 Reasons to Not Fear Inflation in 2022

The nation will be following the Federal government at the moment, mainly as inflation is near decade-high levels, and several anticipate the Fed to take action for the first time in 2021. However, as the rest of the world awaits the Fed statement at 2 p.m. EST, we are not worried. This is because we are unconcerned about inflation.

Yes, you read that correctly. Inflation is not a concern for us. The rest of the world of finance is understandably watching right now. We are unconcerned, primarily because, despite all of this anxiety, uncertainty, and doubt, the vast majority of data now available suggests that inflation pressures will dramatically reduce in 2022.

Consider the following four key data points

1. Comparables are becoming easier to come by

On a year-over-year level, prices have been soaring in 2021, however comparable times have been quite easy to come by. That is, inflation was below 2% on average in 2020. It’s simple to put up large peak figures when you’re competing against sub-2% inflation. Inflation will begin to drop in the 2nd quarter of 2022, compared to the scorching 4 percent-plus inflation rates experienced in 2021. It’s considerably more difficult to put up huge headline figures against inflation comparables of 4%, 5%, and 6% than it is to do so with inflation comparables of 2%. In 2022, tougher comps will inevitably hold down headline inflation.

2. Automation is being adopted by a growing number of businesses

Several businesses have resorted to automated processes as a result of rising wage constraints. As shown in a recent Deloitte poll, about 73 percent of businesses have begun the journey to automation technologies, up from 58 percent in the previous year’s poll. In another sense, automation is increasing across the board, which is a huge deflationary factor that should lower costs and boost efficiency. Experts anticipate that 2022 will be the year when many of these new automation installations begin to have deflationary implications.

3. Money’s velocity is still decreasing

A decline in the velocity of money – that is, corporations spending money less quickly as a result of the growth of productivity-boosting technology – has been one of the greatest drivers of deflation during the last three decades. This secular tendency has not changed direction. Given the country’s high inflation in 2021, the velocity of the M2 money stock has continued to fall. As a result, analysts expect dropping money velocity forces to ramp back up and keep pulling prices lower once short-term supply chain pressures ease.

4. Improvement of supply chains

Supply chain restrictions caused by the Covid-19 outbreak were expected to be a major driver of inflation in 2021. Social distancing policies, such as these, have impeded emerging market industrial activity over the last year, leading to huge supply disruptions. Manufacturing Purchasing Managers Indices in countries like Russia, India, China, Indonesia, Japan, Malaysia, and Vietnam, on the other hand, have all gotten better substantially in recent weeks, indicating that manufacturing capacity in those emerging markets is improving at the same time as social distancing policies are easing. Analysts predict that this upward trend in emerging market manufacturing activity will continue in 2022, paving the way for supply chain stabilization, which will relieve one of the world’s most significant inflationary pressures the following year.

The Author

Oladotun Olayemi

Dotun is a financial enthusiast who specializes in first-in-class financial content, including crypto, blockchain, market, and business, to educate and inform readers.