Why innovation can stop inflation

Nowadays, it seems that almost all economic dialogues are resolved around inflation. Each question seems to lead to another question. Is it transitional? Will it get worse? If so, when? And how long? When we are trying to build, which of the many factors including the post-Covid-19 surge in demand, supply chain shortages, fiscal and monetary stimulus, energy politics or all changes in the way we live, work and play after the pandemic, is the most important A picture of what happened?

In all the debates, one thing is rarely discussed: the role of technology is arguably the most important variable that inflation may occur in the next few years.

For every inflation factor, from labor shortages to transportation bottlenecks, fuel costs, and even long-term pressures like an aging population, there is an imminent technological change that may change the calculations surrounding pricing in unpredictable ways.

Consider the clean energy transition. The demand for electric vehicles has pushed up the prices of commodities such as copper, lithium, nickel and cobalt. Compared with the technologies they replace, green cars and power plants have a much higher metal density. As more and more companies and countries turn to carbon taxes and seek to limit the production of fossil fuels, energy prices may rise further in the short term.

But a broader timetable is of course important. Although the rapid transition to a cleaner world will create some inflationary pressures, it will greatly reduce the cost of climate-related disasters in the long run.

More importantly, technological innovation itself will ultimately reduce costs. Morgan Stanley’s data shows that aside from short-term surges, commodity prices have been on a downward trend for 200 years. This is because whenever an energy source becomes too expensive, a new energy source will be invented to replace it.

We may enter a cold and expensive winter. But given that the cost of renewable technologies such as solar panels and wind farms has fallen sharply (and public and private investment in them continues to increase), we have every reason to hope that over time, the final destination will be a better one. , A cheaper place-one that would weaken some of the stagflation analogies of the 1970s.

What about the inflationary aspect of supply chain delays? Some logistics experts believe that the port backup will continue for several years. However, we have seen the largest and richest companies (such as Amazon, Walmart, and Costco) adapt to this problem through their own innovations.

These innovations will include more vertical integration (for example, owning rather than renting some of your own containers for more control), and also using artificial intelligence systems to better track deliveries. Self-driving cars, including trucks and ships, have received new attention. The first autonomous container ship will be tested in Norway by the end of this year. If such systems make traffic smooth, some of the delays and price pressures associated with the supply chain will begin to weaken.

As the Internet of Things becomes ubiquitous, more and more companies will use new technologies to improve efficiency. As the CEO of Ark Investment Management Company, Cathy Wood, Pointed out in a recent interview that given the depth and breadth of their impact, these innovations, including autonomous mobility, blockchain, gene editing, adaptive robots, and neural networks, are more likely to usher in a period of deflation that is longer than inflation. Covers all business areas.

Of course, they will disrupt the labor market in ways we can’t imagine. For example, technology can play an important role in offsetting inflationary pressures. Aging baby boomersBy increasing the productivity of existing healthcare workers and systems, they will need more care as the workforce shrinks.

China has invested US$1.5 billion in the use of big data in healthcare (and billions of US dollars in artificial intelligence) in the past decade, and it is likely to become the center of AI-driven diagnosis and healthcare innovation.

Policies for using big data in sensitive areas such as healthcare and finance will of course vary from country to country, as regulators are struggling to cope with the social impact of such cutting-edge technologies. If these differences in national policies lead to cross-border frictions in global commerce and involve the movement of people, goods, and capital, then these differences may themselves lead to inflation.

In a multipolar world, more delays, shortages, and mismatches between supply and demand will inevitably occur in the short term.

However, the global economy has become more fragmented in the past few years, which is also an opportunity for technology-driven innovation, which may eventually lower prices.Think about it Vertical farm Agricultural products can be grown in a few minutes from where people eat it, Telemedicine and virtual education platform that eliminates travel costsAnd 3D manufacturing can run through complex and remote supply chains.

These are just a few of the many new technologies that are currently booming. The changes that this innovation may bring can be said to be the only major anti-inflation trend at present. But it may prove to be the most powerful.

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