
In a week dominated by earnings and Halloween prep, inflation somehow stole the show.
It all started with an argument among tech moguls. On October 22, Twitter CEO Jack Dorsey tweeted, “Hyperinflation is going to change everything, it’s happening.” ARK founder Cathie Wood took the other side, saying that deflation is the bigger risk to the economy because of technological innovation and too much supply. Elon Musk chimed in, because of course he did.
All jokes aside, the tweets sent the internet into a frenzy with Google searches of “hyperinflation” surging. It didn’t help that the bond market’s inflation expectations rose to a 15-year high this week.
With inflation, it’s tough not to think about the worst-case scenario. The market seemingly believes we are past the point of the Fed’s “transitory” timeline with potentially no end in sight. And now, economists and talking heads are throwing around nefarious inflation terms (stagflation, anyone?).

Before you start taking sides, let’s talk about what these words actually mean.
Jack’s Side: Hyperinflation
Jack may have a point. Inflation is historically high. There’s no arguing that. Rising inflation could last a while, especially when wages start increasing. And if high inflation sticks around, it could eventually change how companies run and consumers shop.
What he’s missing: Declaring hyperinflation is a bold move. Inflation is when prices rise. But hyperinflation is when inflation spirals out of control. By one definition, hyperinflation is when inflation rises 50% or more in a month. This tends to happen when a currency collapses after a major crisis — like a war or political instability.
Hyperinflation is what we saw in the Weimar Republic of Germany after World War I or, more recently, in Venezuela during the country’s socioeconomic woes. We seem to be far away from that, based on global confidence in the U.S. The U.S. dollar is the world’s reserve currency, and there’s a strong base of international money flowing into domestic markets. Predicting hyperinflation is essentially calling for the collapse of the U.S. economy, not a pricier cup of coffee. And that may be a small risk at the moment.
Cathie’s Side: Deflation
Cathie’s argument may hold some water, too. In a vacuum, better technology can lead to more efficiency, which can ultimately drive prices down. And society could eventually be caught on the other side of the boat, with supply outweighing demand. If supply chain issues really are just pandemic-related quirks, they could subside soon.
What she’s missing: A return to normal isn’t the same as deflation. Deflation is when prices fall (instead of increasing at a slower rate), and it’s a rare occurrence that tends to happen around economic recessions. In fact, deflation, as measured by a month-over-month decline in the core Consumer Price Index (CPI), has only happened in six months since 1970. All were around economic crises when spending was depressed and manufacturing activity was low — the opposite of what’s happening today.

Today, the inflation issue may be more a matter of demand outstripping supply than supply not keeping up with demand. We’d expect to see more warning signs about spending and confidence before seriously worrying about deflation.
Wall Street’s Side: Stagflation
Bonus round: Let’s talk about stagflation, the weird combination of low (to no) economic growth and strong inflation.
Stagflation has been the buzzword of Wall Street economists since the latest wave of COVID struck. It’s a doubly potent economic phenomenon of lower consumer confidence and higher prices. Economists point to the 1970s as a classic case of stagflation, when inflation spiked amid historic oil embargoes and the economy slipped into a 16-month recession.
It’s hard to stomach the fact that GDP growth slowed in the third quarter, even while inflation rose the most in 30 years. Maybe the stagflation-istas are on to something.
What they’re missing: We’re in 2021, not the 1970s. The world is different now. The Federal Reserve’s policy on interest rates is near zero (instead of 5 to 10% in the early 70s), and Fed officials are being mindful about the push and pull between growth and inflation.
There are signs of strong demand and confidence all around us, making it tough to justify the “stag” in stagflation. Plus, the job market is in much different shape now versus back then. In May 1974, unemployment spiked to 9% while core CPI grew 6.8% year over year the same month. Today, the unemployment rate has drifted below 5%, and the economy is in the unusual situation of having 1.2 job openings for every unemployed person. Productivity, or output per hour, is also increasing at an impressive rate, a trend that could support higher growth and lower costs in the years ahead.
The Bottom Line
It’s smart to think about the risks, and inflation is undeniably near the top of the market’s risk list. But in this age of social media and narratives, try not to fall into a bear trap. Pessimism has made for great stories, but it has also led to poor long-term portfolio returns over time. Try to zoom out and think equally about the positives and negatives, and don’t underestimate society’s ability to adapt and improve.
What Jack and Cathie won’t tell you is that U.S. inflation data has been remarkably steady, with year-over-year core CPI barely crossing 2% over the past decade (until this year). Chalk that up to demographic forces, international competition for goods, and — to Cathie’s point — technological innovation.
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Comment on this article
Comments
Randall F. on October 29, 2021 at 2:04pm
Of regulations; the bank does not have to wait 90 days to process my credit... earning themselves and extra penny or two... they could return the money much sooner to allow the owners of the money (that's us) more options... this is just one way the banks can help mitigate any type of inflation/deflation/stagflation.
Thompson F. on October 29, 2021 at 2:42pm
I thank Callie for her write-up, it is encouraging. Thompson
Nobody on October 29, 2021 at 2:54pm
Great article, I appreciate the balanced and practical view.
Daniel on October 29, 2021 at 5:10pm
Excellent overview, I think most of these people are just trying to make headlines and talk about things they don’t fully understand. They are all trying to predict the ultimately unpredictable. They can’t all be right and in this case I think it is most likely that they will all be wrong. Despite the doom predicted for the American economy every year, it has consistently proved skeptics wrong over and over, recovering strongly from recessions and generally growing steadily over time. Of all the global economies, the US has arguably the lowest-risk ones to invest in.
Chris on October 29, 2021 at 5:11pm
A bit of a rosy outlook, don't you think?
Louis on October 30, 2021 at 9:47am
While we may not be experiencing hyperinflation just yet, it is an ever greater threat given the United States loose monetary policy. It took less than 20 years for Venezuela to see their country go from peak to trough and the US appears to be making some of the same mistakes that they did early on. Increasing debt to fund new social programs will only add to the US' difficulty servicing their minimum interest payments. If the world, or even just China, believes that the US could eventually default, then hyperinflation will truly set in and it will be too late to do anything about it. Americans like to think that they are better or at least different than Venezuela and couldn't possibly suffer a similar outcome, but those who don't study history are doomed to repeat others mistakes.
Audrey on October 30, 2021 at 11:49pm
Great explanation. This was a very helpful article!
Ally on October 30, 2021 at 11:50pm
Hi Audrey, we love hearing this!
Bob S. on October 31, 2021 at 11:15am
Great article! Unbias and factual. Keep up the good work and don't let the social media trash frighten you.
lekwa on November 12, 2021 at 12:45am
Appreciated this practical, concise, and accessible piece on complex topics.
Ally on November 12, 2021 at 12:46am
Hi, thanks for reading!
counselor c. on March 3, 2022 at 6:01pm
well, it looks a lot different 6 months later doesn't it- wrong call on why it's not stagflation and this time it's different than in 1970's re stagflation. As Soloman penned in Scripture, vanity vanity it's all vanity there is nothing new under the son (but go to last chapter 12 to get the right conclusion and end of the matter and why it is not vanity of vanities).