Why inflation looks set to return in the wake of coronavirus

The collapse in the global economy caused by Covid-19 and the measures to avoid it look deflationary, says John Stepek. But politics and demographics point to a very different outcome.

Amid all the questions about Covid-19 – when will the lockdown be over? How quickly will we discover a vaccine? Will there be second waves or mutations? – we know two things for sure. One is that the scale of the economic downturn caused by both the pandemic and the measures to contain it is unprecedented in the modern era.

The precise figures are unimportant – we all know that forecasts are virtually always wrong – but to give a sense of just how bad things are, the International Monetary Fund (IMF) reckons that global economic output will fall by 3% for the whole of 2020 (for perspective, it fell by just 0.1% in 2009, during the global financial crisis). Meanwhile, in the UK the Office for Budget Responsibility – the UK’s fiscal watchdog – has warned that we are looking at a 35% plunge in GDP in the second quarter, assuming the lockdown stays in place for the full three months.

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.