Torsten Sløk on policy inflation

We know there has been more deglobalization since 2019, which means more onshoring, friend-shoring, near-shoring, and home-shoring.  That means more production is coming home to the U.S. and Europe, in particular, which means the cost of production is likely to go up.  Generally, deglobalization is inflationary.

Next, the energy transition is a significant investment theme and implies significant costs.  It, too, is broadly inflationary.

Third, we are likely to see more military spending, which is also inflationary.  Spending more on missiles and tanks takes investment away from other productive uses like capital spending.

Fourth, and finally, we could see more restrictions on immigration in both the U.S. and Europe, which is inflationary.

If there is one major economic theme in the next three to five years, it’s the risk that we will see permanent upside pressure on inflation.

~ Torsten Sløk, "The Economy Is Fine. The Market Will Be, Too," Barron's, August 10, 2024