It was a matter of time before the inflation/deflation, transitory/permanent debates crept onto this board. Which is fine, since it is highly relevant to our investment theses working/not working. But we should cut each other some slack when discussing this topic because it is not an either or debate.
My take is a simple one - everyone is right. There are pockets of deflation due to underutilization of assets and Covid-induced unemployment or underemployment over the last year and half, and there are also very strong inflationary forces as well.
Regarding inflation, the story gets a bit complicated and I think this is where some of the egos and arguments kick in. People forget that inflation is a symptom. It is neither an ailment nor an economic tool as is commonly perceived. Inflation can be good, and it can be bad. It can be helpful and it can be hurtful. It all depends on the context and the cause of the inflation in question.
Demand pull inflation is obviously good and is what the fed targets with its monetary policies and what the White House (+Treasury) manipulates with fiscal policies. This type of inflation is good to have. It was plentiful with Trump due to most of his economic measures, deregulatory policies and general business hubris (tariffs on imports, coaxing of Fortune 500 companies to invest domestically, encouragement of left-for-dead industries such as steel, O&G, Coal, etc..) working.
Cost push inflation is generally not as good to have. It could be caused by supply chain problems, economic blow-off top exuberance, an economy run by oligopolists, or simply due to systemwide inefficiency (think Venezuela and Cuba).
This type of inflation has not been a persistent problem in the west for for a number of reasons including the fact that the exponential rise and use of technology has helped us keep inflation at bay over the last two decades largely in part to productivity gains that are deflationary in nature but that still help boost economic growth. That may be tapering off as productivity gains become more elusive, despite the continued technological progression of society in general.
It would be hard to argue that all of the above modes of inflation are not at play today. And there are other, more minor inflationary forces as well. Depending on what economic sector you analyze, you will be able to identify one or more of the above mentioned inflationary/deflationary forces and others more specific to certain industries (such as deflationary wage forces due to importing cheaper IT professionals from India as US immigrants).
What all the talking heads (and some board members here) are analyzing is a hodgepodge of a mess of a global economy jarred by government public policies that have reached very deep into the normally smoothly operating worldwide economy. It is no wonder that there is confusion about what they are seeing, what is causing the symptoms and what the repercussions are going to be. Let alone how to pivot for it as investors.
But there's ONE MORE THING (as Steve Jobs used to say)... and I think this is the most important aspect of this debate that is not given its due credit in my opinion. This thing is called currency debasement and I believe that it is the main factor leading to what the inflation camp argues is permanent inflation. Yes, there are transitory inflationary forces. Yes, Powell is right. Yes, others who agree with Powell on this point are correct. Returning millions of people to work falls into this category. So does the sudden rush of demand for used cars by those who suddenly fear riding the bus. Or the pent up demand for vacations and hotel stays and car rentals. The expenditure of stimmie cheques on Louis Vuitton bags by those who live paycheque to paycheque falls into this category.. These are all transitory pressures and they will pass.
But Powell is disingenuous if he is trying to convince us that such short term inflationary pressures are all we are going to experience, while he Brrrrrr prints TRILLIONS of dollars which are NOT needed to assist the self-healing economy. There is NOTHING, in my humble opinion, as inflationary as currency debasement. And it is anything but transitory in nature.
If you don't believe me, take Roman history lessons. They are replete with repetitive examples of currency debasement leading to uncontrollable inflation. From the rise of Romulus to the fall of Constantinople, irresponsible money printing (or coin minting to be precise) proved over and over again to create conditions of lower buying power. You can call it inflation if you want to, but it is a symptom of the act of printing/minting and not a phenomenon that exists in the ether.
So yes, there are deflationary pressures. And yes, there are transitory inflationary pressures. But most of what we are seeing, in my opinion, is the result of the extreme and relatively sudden debasement in the world's leading currencies. In the short term, there's going to be a lot of noise about what is going on, what it means and what to do, but its best to keep it simple - assume that this debasement counts, that it will continue and that it will lead to further monetary weakness in the future.
The only counter to that is to invest in hard assets of value (oil reserves, good bottles of wine, desirable property, etc..) or perceived value (Gold bullion, popular cryptocurrency, rare baseball or pokemon cards). The only exception to this is at market liquidation events, namely stock market or real estate market crashes. This is the only time I like to have high cash reserves. And always US$ as it is the best of the worst and the currency of liquidation.