McMillon’s comments may well say something concerning for Walmart shareholders. The stock slipped 8.1% on Thursday despite better-than-projected earnings, a slide largely attributed to management’s cautious outlook. But their macroeconomic implications aren’t particularly alarming.
The deflation that ARK Investment Management’s Wood has been warning of has a different flavor. She recently pointed to the weak trends in commodities, airlines and autos to underline her forecast for widespread price declines, which she expects will be triggered by new technologies including artificial intelligence, electric vehicles, robotics, genomic sequencing and blockchain. I suspect that forecast is highly unlikely, and every mainstream economist surveyed by Bloomberg seems to agree with me.
If anything, the main risk to the price outlook seems to be goods inflation, not deflation. If billionaire investors such as Ken Griffin and Bill Ackman are right then we’re facing a period of deglobalization, the consequence of which could be goods prices that increase persistently in a way that we’re just not used to.
In part, Griffin and Ackman have argued that rising geopolitical tensions and the pandemic experience will lead developed economies to produce more domestically, even if it means higher prices. Holding services inflation constant at 2000-2019 levels, that would mean higher overall inflation and marginally higher interest rates for the foreseeable future. (Personally, I’m much more optimistic than Griffin and Ackman that nations will choose peace and global commerce over war and inflation, but the hedge fund titans have described plausible risk scenarios that everyone must consider.)
On the other hand, a bit of goods deflation is nothing to fear in the near term, and it certainly isn’t a sign of an economic downturn. If anything, it may be a key part of our path back to some semblance of price stability — and a precondition for lower interest rates down the road.
Jonathan Levin is a columnist focused on US markets and economics. Previously, he worked as a Bloomberg journalist in the US, Brazil and Mexico. He is a CFA charterholder.