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While many, including the Federal Reserve, see the jump in prices as “transitory,” economists at Morgan Stanley believe it’s much more than just a blip. In particular, they see five secular shifts that could contribute to this dynamic, each of which can be summed up using terms that begin with the letter D.

Rising inflation, more than just transitory

Deglobalization

“In the past decade, globally optimized supply chains helped to check price inflation. Now, the COVID-19 pandemic has likely sped up a shift toward deglobalization that could return supply chains to the US, which could contribute to consumer price inflation.”

Deficits

“Federal debt and deficits are exploding in the wake of unprecedented amounts of stimulus meant to counter pandemic disruptions. With the Fed essentially buying new government debt, dramatic growth in the money supply could be inflationary.”

Dollar debasement

“More stimulus to keep long- and short-term rates low would likely drive inflation through further declines in the value of the dollar against other major currencies.”

Demographics  

“More Baby Boomers are retiring, and the hiring of Millennials and Gen Z has accelerated, creating conditions for a wealth transfer to a younger workforce entering its peak spending years.”

Digitization 2.0

“The need for contactless business models arising from the pandemic coincides with a completely different set of maturing technologies that could help drive robust capital spending, including artificial intelligence, robotics and distributed-ledger technology known as blockchain.”

 

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