Specter of Rising Inflation Threatens Future Economic Freedom

  • Nations around the world face a number of challenges in rebuilding their economies. One of them is the specter of greater inflation.
  • The United States and much of the world has benefitted from relatively low inflation since the early 1980s.
  • If moderate to galloping inflation were to set in, governments would need to stop printing money and stop running budget deficits financed by more borrowing.

As the worst and most devastating initial economic impact of the global pandemic begins to fade, nations around the world face a number of challenges in rebuilding their economies. One of them is the specter of greater inflation.

As a component of the monetary freedom score in the Index of Economic Freedom, higher inflation will weaken that score and have a dampening effect on economic freedom.

With lockdowns ending and more people and businesses normalizing, demand for commodities has increased. So have their prices. There is plenty of cheap money in many countries chasing still relatively scarce, COVID-19-impacted supplies of commodities. Sectoral inflation is the result.

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Reuters reports that 52 “out of 63 commodities monitored by the World Bank were up in price in December 2020 compared with the same month a year earlier.” Commodities such as “energy (coal and gas); agricultural products (tea, coconut oil, palm oil, fish meal, rice, citrus fruits, sugar, logs and rubber); fertilizers; and industrial metals (copper, lead, nickel, tin and zinc).”

Randy Brown, writing in Forbes, reports that the global post-pandemic economy may be encountering a new commodity price “super cycle” that could result in higher prices for many years to come. Copper, in particular, is “essential for batteries, electric cars, solar panels, wind turbines, and 5G solutions. It is also the lifeline for connecting renewable energy to the grid.”

As such, demand for copper is rising, along with its price. Bloomberg recently cited sources predicting that the metal could reach the all-time high of $10,000 per metric ton in 2021.