Inflation in 2023

Into the road less traveled

I kept a vacation for a week. I visited Pallastunturi and Levitunturi in the north-western part of Finland (west Lapland). It was a much needed break from the ‘doom-and-gloom’ of past year. I skied (downhill), snowbiled, wondered in the wild and met interesting people.

We had some intriguing discussions on the economy and the Russo-Ukrainian war in the panoramic sauna of Panorama hotel Levi. This, having serious discussions in the sauna, is a Finnish tradition, even though this time most of the discussions took part in english with tourists and people working with the Porsche Ice Experience (no advertisement).

Discussions revealed, again, the fact that majority of people tend to be wholly unprepared for the worst-case options. I, on the other hand, have been pondering the worst-case options all my adulthood. In part, this due to the passing of my father, when I was just two months old. My life started with a massive adverse shock. My first memory of the economy was the early 1990’s banking crisis and depression of Finland. That shooked my world (less then others, though) and made me understand how important the economy and preparation for its adverse outcomes, to uncertainty, is.

Future uncertainty can only be met with the help of scenario forecasting. The concept of it has turned to be relatively difficult to explain to people, almost completely regardless of their educational background. Academic economists and mathematicisians I’ve worked with have naturally understood the concept, but it does require a rather high level of abstract thinking. This is attainable to everyone, I am sure, but it tends to require a bit of work and especially rearranging of one’s own thinking.

Now, we (the world) are in a phase, which requires a high level of abstract thinking, if one wishes to understand where we are heading.

We laid the principles for the road ahead in our scenario forecasts published in the last days of 2022. Their range could hardly be any wider. The worst-case scenario essentially established a road to World War III. The best-case scenario, naturally, painted a road to peace and properity, though an economic crash, though.

I am rather certain that the road we will take will emerge during the next few months. Thus, I decided to use the first weeks of this year to map, where I think we are heading.

I start with painting the inflation picture going forward. In the next posts I will dwell on the economic prospects and publish an update to my worst-case scenario concerning the Russo-Ukrainian war.

Let’s start with a look to the energy markets.