With Donald Trump’s election to the US presidency, investors began expecting higher growth and inflation, mainly because of Trump’s proposals for lower taxes and higher fiscal spending. We examine the link between fiscal policy and prices, discuss alternative explanations for the causes of inflation, and conclude that the monetarist perspective is the most convincing. Consequently, in my view, industrialized economies are currently a long way from any serious threat of inflation.
Following the election of Donald Trump to the White House, equity markets began a significant upward move – the “reflation trade”. At the same time, there has been a sell-off in fixed income markets. We examine the validity of the Trump reflation trade, both with respect to US economic growth prospects, and particularly its possible impact on inflation.
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