MUNICH - Inflation seems to be on everyone’s mind nowadays.¹ The debate usually centers on whether the United States’ massive monetary and fiscal stimulus will de-anchor inflation expectations and cause prices to spin out of control.² There is another trend that could also generate inflationary pressure: deglobalization.

Deglobalization has been occurring since the 2008 global financial crisis, but the coronavirus pandemic has significantly accelerated the trend. Using data from the financial crisis, Kemal Kilic - a professor of Data Mining and Machine Learning at Istanbul’s Sabanci University - and I predict³ that the COVID-19 shock is likely to lead to a 35 percent decline in cross-border value chains - the main factor driving globalization over the last three decades.

A recent survey⁴ by the Munich-based ifo Institute supports this conclusion. The study revealed that about 19 percent of German manufacturing firms plan to reshore production. Of these, 12 percent will begin acquiring inputs from German suppliers, and 7 percent will produce them in-house.

Rising transport costs⁵ are likely to accelerate the shift away from global value chains. During the pandemic, the