Inflation may not easily or quickly return to the 2% target of the Federal Reserve, because the medicine of higher rates must contend with new headwinds.
Trade and geopolitical tensions are rewriting the globalization playbook, making supply chains more costly and removing a former source of downward pressure on inflation. In the golden era of globalization, supply chains were optimized for only one criterion – the lowest possible cost. In the new era of heightened trade and political tensions, resiliency and diversification of sources has become paramount, and it comes at a price.
The price reduction gains from technological and social media advances have been a key element of empowering consumers to comparison shop, resulting in more competition and downward pressure on inflation. Unfortunately, this trend has largely run its course. Developments in artificial intelligence are more likely to be focused on labor-saving advances, providing more support for maintaining profit margins than helping to depress inflation by further empowering consumers.
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