Deflation, Punctuated by Spasms of Inflation

The price of batteries has declined by 97% in the last three decades

Source: Our World In Data



My perspective on inflation has been well defined: The general Cost of Living has been trending downwards over the past 3 decades, even as global standards of living have been rising. The biggest exceptions in the U.S. are health care and education.

Consider for a moment the future of energy as we move from carbon-based sources to renewables, such as Hydrogen, Solar, Wind, and whatever else might come along next. An enormous challenge to the impending shift is going to be the storage and transmission of this energy. The key to transmission is super-efficient lines: We currently use copper, but imagine not too far off in the future, an advanced superconducting material will reduce loss from friction and heat dramatically. The Physics(!) of this is fascinating, but it is not yet to the point where it can be widely commercialized — yet.

The other half of this equation is storage. It used to be complex and expensive; the complexity remains but the cost equation has radically changed. Today, Lithium-Ion batteries cost 97% less than they did 3 decades ago. And, they are far more efficient than they once were.

Materials science and software are progressing so fast that sometimes the broader economy misses it. If you look for this sort of efficiency cost curve you can see it almost everywhere. In so many sectors, the dominant theme is cheaper-better-faster-smaller. The big picture 10,000-foot view is falling prices, rising quality, and increased availability. Spot shortages, low housing inventory, and year-over-year price spikes are all but invisible from this height, or if your time horizon is more than the next 3 minutes.

Hence, why I believeWe live in an era of Deflation, punctuated by occasional spasms of Inflation. This suggests that fears of inflation are likely to be more overstated, even with low monetary rates and high fiscal stimulus.”

In light of that, I do not believe we are going to see high levels of pernicious and sustained price increases in the face of this dominant macro trend.

Your priors may vary.


Update: August 19, 2021

Paul Kedrosky shares this chart:




The Inflation Reset (June 1, 2021)

Stop Stressing About Inflation (February 11, 2021)

Wildly Wrong About Interest Rates, Jobs & Inflation (June 11, 2019)

Inflation: Price Changes 1997 to 2017 (February 12, 2018)


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