Article

Deflationary pandemics: they’re behind you!

5 December 2021
Arnab Das
Arnab Das
Global Market Strategist
Deflationary pandemics: they’re behind you!
Melbourne, Australia

Almost a thousand years of British data shows that pandemics have been deflationary and wars inflationary. Lockdowns reduce demand without destroying productive capacity, but wars mobilise people and production and destroy supply.

This time is shaping up to be different, as monetary and fiscal support have prevented deflation.

An ideal gift for the new year? To control the current rise in inflation by carefully cutting back on stimulus.

Figure 1. A millennium of macro instability – is this time shaping up to be different?

Note: Inflation data for Great Britain from the 2018 release of ‘A Millennium of Macroeconomic Data’ by the Bank of England. A selection of pandemics and wars thought to have affected the economy of Great Britain. The 1817 First Cholera Plague appears not to have reached Great Britain from Calcutta where it is thought to have begun, but probably affected global trade and growth. Calcutta was then among the largest ports and trading cities in the world.

Source: Extended to wars and adapted on pandemics from Silvana Tenreyro, Bank of England speech, ‘COVID-19 and the Economy’ (London School of Economics, July 2020). ‘A Millennium of Macroeconomic Data’ – the Bank of England, FRED, Macrobond, Invesco. Data through 2016. Downloaded 20 March 2021.

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