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Can innovation help curb inflation?

Inflation and Technology

When Covid is not dominating the news, we regularly hear about another virus: inflation.

Prices for energy and building materials, among others, are rising dangerously due to problems in production and logistics chains. According to Siddy Jobe, portfolio manager of the Econopolis’ Exponential Technologies fund, technological innovations have the potential to solve these issues.

It is hard to believe but not everything is getting more expensive today. Just look at our digital consumption. Over the past decade, the amount of data we use has increased exponentially, but not the price. At the same time, our smartphone has become a kind of Swiss Army knife we can no longer do without.
Based on this, one would expect the price of cell phones to have risen over the last ten years. But the opposite has happened. The price of our mobile subscriptions has gone up, but we are getting much more in return. Our current mobile data consumption would amount to thousands of euros per month if calculated on the basis of prices from ten years ago. What are the reasons for it? The answer has to be found in product innovation enabling technology to get faster, more powerful and cheaper at the same time .
This brings us to the deflationary nature of technology. Deflation occurs when prices fall over time. It is because of the constant and innovative progress of technology that its cost has been falling, more and more rapidly, in recent years.
Technology is also deflationary because it allows an efficient increase in the production of goods and services: the more technological progresses is accelerating production, the easier it is to meet market demand. And when supply meets demand, there is generally no room for price increases. This is where innovation can also act as a "vaccine" against the inflation virus.

Innovation, however, usually requires several attempts before it achieves its goal. “Industrial Internet of Things” (IloT), for instance, is an excellent example. The Internet of Things (loT) is a system of interrelated computing devices with sensors and software that share data with networks to make consumers’ lives easier. Think about appliances, lighting, thermostats or home security systems. In a similar way, IloT, goes further by focusing on applications that increase safety and efficiency in industrial production.

Despite much speculation on it over the last ten years, the technical aspects have only recently been sufficiently matured. For example, the required computing power of computers has increased exponentially lately, while storage costs have decreased considerably. In addition, the deployment of fiber optics and 5G networks offers higher download speeds. In other words, it is only now that IIoT can realize its true potential.

Currently, on international scale, companies are struggling to restore their pre-pandemic inventory levels. This costly and complex challenge is forcing them to turn to technology to optimize their supply chains. The accelerated implementation of IloT applications fits perfectly into this framework.
For example, the Industrial Internet of Things, makes it possible to interconnect networks of companies and coordinate data for demand, supply, inventory and capacity via a central hub. Connected companies can therefore react more quickly to problems in supply chains.

The Covid crisis and its impact on international markets is leading to an accelerated implementation of the Industrial Internet of Things across the entire value chain: from production to storage to home delivery. Logically, in the long run, supply and demand should become more aligned and thus lead to lower inflation.

We believe that stocks of strong, profitable technology companies , which use the maximum exponential growth trends potential , offer a great investment opportunity in both deflation and inflation situation.

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