All thesesPattern Lab
evolvingv2.1 · 52 signals

Inflation Pressures

Structural inflation beyond the cycle. Labor markets, demographics, and deglobalization creating persistent price pressures that change the investment calculus.

Inflation Pressures

The Core Argument

The 2021-2023 inflation spike wasn't an aberration—it was the leading edge of a structural shift. The disinflationary forces that defined the 2010s (globalization, technology, cheap labor) are reversing simultaneously.

This doesn't mean runaway inflation. It means persistently higher inflation than the 2% we got used to. The difference between 2% and 4% inflation compounds dramatically over investment horizons.

Key Claim: Inflation will average 3-4% through 2030, not the 2% of the 2010s.

The Three Structural Forces

1. Demographics — Boomers retiring, fewer workers entering the labor force. Labor scarcity is a global phenomenon in developed economies.

2. Deglobalization — Reshoring and supply chain diversification add costs. "Efficiency" is being traded for "resilience," and resilience costs more.

3. Energy transition — The shift to renewables requires massive capital investment. Whether you believe in climate change or not, the investment is happening.

Why This Thesis Is "Evolving"

Recent data has challenged the thesis:

  • Inflation has fallen faster than structural models predicted
  • Supply chains have adapted more quickly than expected
  • AI productivity gains may be larger than assumed

I'm not abandoning the thesis, but I'm watching closely. The question isn't whether these forces exist—they clearly do. The question is whether they're being offset by other forces I'm underweighting.

Investment Implications

If persistent 3-4% inflation holds:

  1. Real assets outperform — Property, infrastructure, commodities
  2. Nominal bonds suffer — Long-duration fixed income is a losing trade
  3. Pricing power matters — Companies that can pass through costs win
  4. Cash is a wasting asset — The opportunity cost of sitting in cash is higher

What I'm Watching

1. Wage growth vs. productivity — Are wages outpacing productivity gains?

2. Shelter inflation — Housing costs are the stickiest component. Are they re-accelerating?

3. Services inflation — Goods inflation has normalized. Services tell the real story.