Q1 2017 Absolute Return Letter – A Note on Inflation: Is It Here or Isn’t It?

Some jerk (meant in the friendliest possible way) asked me a while ago: “Why do economists provide estimates of inflation to the nearest tenth of a percent?”. I thought for a second, but before I got a chance to answer him, he said: “To prove they have a sense of humour.”

In fairness to this ‘awful’ friend of mine, 99.9% of all economists got it completely wrong in the years following the financial crisis. Nearly everyone thought QE could only end in runaway inflation, but what happened? With only a limited number of exceptions, all over the world, inflation continued to go lower and...