Economist Mohamed El Erian wrote that inflation may increase once cost cuts from the gig economy (Uber, Amazon, etc.) have been maxed out and the supply of unemployed people dries up, and corporations get more oligopolistic.
I disagree, I believe: The dominant paradigm of the era is cheap EM labor undermining Developed countries resulting in unemployment, foreclosures, low growth in Developed countries. This force is far more powerful than the inflationary force suggested by Mohamed El-Erian. The fundamentals of EM countries are export subsidies, and excess production funded by local banks under political orders to loan money to companies that are not financially sound, so as to create make-work jobs, etc.
Ironically as the trade dispute with China acts to move jobs from China to smaller EM countries that will increase the forces of disinflation as work is shifted to poorer, hungrier small countries. Undermining China’s debt-laden economy could result in China going into a depression and since the world is used to China as the engine of global growth then a flip over to China being the engine of a more intense version of Japan-style soft-depression could result in greatly disinflationary forces in the global economy.
In another decade the paradigm of the cheap labor benefit of EM countries will be replaced with a new global paradigm in which what matters are quality, complicated, sophisticated goods and services, with excellent consumer rights, made in Developed countries by well educated workers. Since there is a shortage of credentialled workers who are high quality college graduates, then the new secular era a decade away would be less disinflationary than the past 19 years. This would be even more true if the deflationary overhang of the monetary and fiscal errors of Japan and the EU with their huge negative rate debts, etc. could somehow be fixed and they could return to normal.
For the near term investors should avoid overpriced stocks and real estate and focus on bonds as a haven from the next big stock crash. Thus in the near term a crash would be disinflationary. No one knows if the central bank pump priming to be done to get out of the next recession will create inflation (probably not). Thus investors will have to be vigilant against the risks of inflation and be ready to move quickly to liquidate bonds if the evidence accumulates that inflation is coming back. I believe it is difficult for central banks to create inflation by a simple fiat command, instead it takes fundamentals like a massive surge of growth and a forgetting of depression psychology as in the start of the 1965-81 inflation paradigm. The fundamentals of the global economy are that Japan hasn’t fully recovered from their disinflation from the crash of 29 years ago, China is overdue for a big debt bubble crash, and the EU has no solution for their disinflationary debt bubble.
Investors need independent financial advice about the risk of inflation.