The future tends to be surprising, especially in the short term. Economic variables are all over the place; humans and their activities are messy and random. Economists who try to forecast them are invariably wrong, often by an embarrassingly large margin. That does not deter various gurus from flooding media outlets with opinions on just about anything. Such is the case with the current obsession with predicting inflation, the economic indicator that is hardest to call.

Every media chatterbox nowadays seems to be spewing "expertise" about inflation: how high will it be during the current and the following year, its duration, the goods and services worst hit, what should be done to alleviate the pain inflicted on us all And, ultimately, why aren't governments doing more to lighten the load?

The current consensus these days seems to be that "inflation is here to stay". This, as many will explain with some conviction, is due to the huge sums of money being printed by the Fed and other central banks. It seems irrelevant to them that the commercial banks have "printed" far more money than all the central banks combined, especially in recent years - the central banks and politicians are to blame. "The Lords of Easy Money": How the Federal Reserve Enriched Wall Street And Broke the US Economy, by Christopher Leonard has become an overnight bestseller.

Plamen Monovski, Blackrock

Populists from different countries love to blame inflation on governments and greedy corporations without offering any remedy. An entire new class of (mostly male) millennials has resurrected from the dead the specter of Ludwig von Mises and the Austrian school of economics. Having learnt about it in the university of YouTube and Facebook, they gawk at world elites and "illuminati" who have unleashed the money printing presses in order to inflate debt and reduce us all to abject poverty.

Well, with all that deafening chorus, where do we start in the search of some common sense? Let's reason a little.

The world's central banks have been printing cash for more than ten years now, since the global financial crisis and once again after the Greek banking debacle. The Fed has desperately tried to lift inflation above 2 percent for the better part of the last decade and has failed conspicuously. Inexplicably, inflation remained at very low levels for a long time.

Students of history will know well that the Bank of Japan (BoJ) has been printing furiously since the epic collapse of the real estate bubble in the late 90s (when the land around the Emperor's palace was allegedly worth more than the value of the land in the entire state of California!). BoJ has not only failed to create inflation - on the contrary, the Japanese currency has since spiraled towards deflation. The velocity of money (something which the printing presses ideologues forget about) remained very, very low. Go figure!

And then, there are the persistently high-inflation offenders. The UK has had a permanent inflation premium in its fixed income markets for decades. Importers used to call the Albion "the Treasure island" due to the higher prices they could charge when selling in Great Britain.

Elvira Nabiullina, Russia's central banker, can hardly be accused of being a friend of the printing presses. She is arguably one of the world's finer central bankers, and yet, Mrs Nabiullina has had to contend with runaway inflation in Russia for an eternity. Most students of emerging markets, where I spent 20 years of my investment career, will tell you that inflation is genetically imbued in the fabrics of society in India, Brazil, Argentina, South Africa etc. Just ask the poor Turks who reached 30 percent inflation rate for 2021 alone! No matter what the authorities in the abovementioned places do, inflation rarely leaves them.

So what shall we do with all those predictions about high and devastating inflation? Perhaps the best we can do is to look at one of the obvious underlying factors.

Commodities

Commodity prices have been galloping for the last two years but it was not until a few months ago, when prices of electricity, gas and petrol surged, that the media caught up with the process. The prices of commodities are highly cyclical. They move sharply up and down, most of the time in a surprising manner. The cycles are sometimes short, and sometimes - long.

After the long commodity cycle boom of the early 2000s and the subsequent bust in 2008/09, the prices of most raw materials went nowhere for a decade. Oil prices collapsed as, apparently, the world was becoming green and everybody was driving Teslas, needing no oil. Now that oil prices have surged, the narrative is the same. High prices have been caused by the world becoming green and all cars are becoming Teslas, but oil is needed to power the electric economy.

Much like with the pandemic, humanity is watching inflation like a deer looking at an approaching car's headlights, not knowing what to do. An entire generation of consumers, business leaders and founders, politicians and party leaders has been raised in a world of persistently low inflation. Totally surprised and unprepared, they transformed into a panic-stricken crowd in search of a scapegoat.

I have learnt though, that when everybody is talking about the same thing and expects more of it to happen, precisely the opposite occurs, which once again takes everybody by surprise. As they say, the consensus is always wrong.

A few weeks ago, Barron's, the widely read and woefully inaccurate sister publication of the Wall Street Journal, had a front cover screaming about the ongoing commodity boom. The millennial writers of Barron's have obviously forgotten about a similar cover of theirs which went ablaze just before the biggest collapse of commodities in modern history in the late 2000s. The current price curve that oil is following may closely track the previous increase. It is possible that it will rise much further before falling sharply again, this time with even more catastrophic consequences.

This makes me think: perhaps the past surge in prices does not mean that prices will continue rising indefinitely. Perhaps looking in the rearview mirror to guesstimate the future is not the best idea.

The US bond market

The largest and most liquid bond market in the world, it seems, also does not rely on the rear-view mirror. Despite the incredible recent rise of the consumer price index, long-term bond yields have not budged from their low levels. Recently, the yield on the 10-year US Treasury note passed the key two per cent yield with inflation above 7 percent. It is possible that this is the very beginning of such a rise in yields (hence a fall in debt prices) and that it goes hand in hand with oil price movements.

It's been a while, so most of us might have forgotten that during 2008 the sharp increase in the price of oil caused a massive recession and the ensuing global financial crisis. Many forget that the profits from speculative trading activity of the big oil majors and trading houses could dwarf their operating earnings. Their actions can both inflate and deflate the price of oil and commodities with the speed of light. You will not read in many places that the operations of financial actors in the commodities market, who have nothing to do with the exploitation of these resources, sometimes exceed by a significant margin the operations of producers and consumers.

So there it is - the yield on long bonds moves in lockstep with the move in oil but whither shall we go when the two decouple like they did in 2008? When both oil and bonds rally, is the bond market telling us that prices of goods and services are not only going to rise, but about to fall? Could the current long expansion, put on steroids by the post-Covid stimulus, be about to end?

Stock markets, too

Instead of growing, stock markets sharply collapsed at the beginning of 2022. The first 16 days of 2022 saw the worst performance of the US stock indices since 1929. The January prices of stocks were below the lows of December, unfortunately a bad sign for their future performance. Sure, technology and growth shares have suffered while undervalued shares rose. Perhaps as a colleague said, "we are once again reduced to buying only oils and banks". Perhaps inflation will go on and on, only to eat away our hard-earned cash and make a mockery of business leaders and politicians?

Or perhaps it won't. There is another possibility too. Should the fixed income market be right once again, and should recession loom, inflation talk will not only cease but we will yearn for a return to price growth exactly when businesses start to collapse and unemployment soars.

Just don't call an economist to tell you when all of this would happen. They will have an opinion but they will never know.