What was the best-performing asset class in 2020? If you think “tech stocks” or “bitcoin”, think again. Instead, as the Bridgewater hedge fund recently wrote to its clients, “among the more interesting and least recognised outcomes” of 2020 was that US inflation-linked bonds beat other assets by delivering a 35 per cent return, on a risk-adjusted basis, as investors hedged against inflation risks.

This is a notable straw in the wind. It might seem bizarre that anyone should fret about American inflation now. Data on Wednesday showed that annual US consumer price inflation was a measly 1.4 per cent in December. Wage growth is also weak, unemployment high and economic activity dragged down by the pandemic. Even if growth resumes in 2021, recent decades suggest that the twin forces of globalisation and digitisation should keep prices in check. 

Most notably, the internet has unleashed new global forms of price competition for goods, services and labour. It may well continue to do so, given that Covid-19 has accelerated the digital shift. Today, almost everyone has become adept at online shopping, while companies have discovered many employees can work remotely. So the competitive pressures that keep a lid on inflation seem to be rife.