So, it isn’t even prediction time, but it seems I have been nominated to put my head on the block. To start this article, I should be clear - I have moaned as much as anyone over the years about those predicting recessions, doomsday crashes and the likes. I was particularly vocal in 2020 from a relatively early position (not as early as some, mind) in the lockdown that property prices weren’t going down - in the face of 40% drops in the market being predicted then by Savills/Knight Frank/CBRE. Interestingly, all of this came from one simple bit of extrapolation from a variable that arguably is not linear, in a linear fashion. And then, by the time the market had opened back up, I had realised that they(values) had a small chance of going up, and was buying again very quickly. Obviously, that small chance of an upwards direction turned into a big reality of a groundswell upwards, particularly in some unloved areas from the 2010s (Scotland springs to mind). Most of my property assets are in towns or suburban areas, and so I really felt the benefit of the migration towards the countryside and that temporary reversal of urbanisation (note - temporary).
This article has come about because I feel somewhat differently today. As recently as last week, I was predicting a 50/50 chance of a recession in the next 12-18 months. Things are moving at a relative pace at the moment, however, and the reality of stopping the inflation train is dawning. Firstly, a revision of the narrative that has emerged since the beginning of 2021, and then my take on the truth.
The central banks of both the UK and the US married themselves to a single word - transitory. That is, this recent bout of inflation would pass, it was a supply chain disruption phenomenon that would work its way out ‘post-covid’ - if, indeed, the world is post-covid (China certainly doesn’t think so). In fairness, they had little alternative but to stick to this narrative - because any other recognition may well have made the bond/stock markets panic. However, instead, markets have worked out for themselves that instead this inflation is secular - that is, it is here to stay - for some commentators at least.
For me, the truth lies somewhere on that scale - there is an element of the recent inflation that is transitory, and an element that is secular thanks to the permanent shifts that the pandemic has caused. One of these, as an example, would be de-globalisation; at the very least, an awareness that a huge dependency on China to manufacture a gigantic share of the world’s goods, including pharmaceuticals (90% of US prescription drugs were being manufactured in China in 2020, for example) - and what seems like a genuine desire to move away from this dependency. The problem, of course, is that China is the home for a lot of this manufacturing because they can do it at the lowest price, at the largest scale - so movement away from this has to be inflationary by definition.