It may not look like it, but inflation is coming our way. Here's how to invest

We’re in the middle of a huge global recession. And central bank money printing didn’t lead to inflation after 2008. So why are we saying that it will now? John Stepek explains why it’s different this time.

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The world is facing the worst downturn since World War II, according to the World Bank, with global GDP set to fall by 5.2% this year. Markets this week may have cheered a jump in US employment last month, but the unemployment rate still sits at a staggering 13% (and due to an error in the calculations, was probably significantly higher) and the economy is now officially in a recession that the National Bureau of Economic Research reckons started in February. In the UK, we’re attempting to open the country up again, but while the pubs might be open later this month, we still can’t make any headway on getting children back to school, which promises to make any “return to normal” a tricky task for working parents. And we’re still not much clearer on when or if we can expect any vaccine for Covid-19, which means the spectre of a second wave remains a valid worry.

Against that backdrop – mass unemployment, plus a slump in demand – fear of inflation may seem a little misplaced. What’s behind it? There’s one simple answer – it’s all the money printing. Central banks across the globe, emboldened by their actions following 2008, have slashed interest rates, embarked on even more quantitative easing (QE) and moved from buying government bonds to all sorts of other assets. We’ve already seen the impact in financial markets. In the last week or so the “smart” money on Twitter has been decrying a fad among small investors using free-to-trade apps such as Robinhood for taking punts on stocks that are technically bankrupt. And yet, given that the Federal Reserve has pretty much outlawed bankruptcy, why wouldn’t day traders take such a gamble? It’s certainly no more outlandish than the craze of a few years back for betting on newly minted cryptocurrencies, or the dotcom madness of 2000.

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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.