Once off or start of a trend?

US inflation surged even further last month, raising fears that the world’s largest economy risks overheating as ultra-low interest rates and Joe Biden’s extravagant spending plans pump up growth.

Prices recorded their biggest jump since 2008 according to the Bureau of Economic Affairs, with an increase of 3.9pc on the year.

Opinions differ. So, place your bets, this is what makes markets.

As to my opinion, well, I dunno.

But I would note that near all of those who insist it is just a blip are those who also want to insist that lotsnlotsnlots of deficit spending is a thoroughly good idea, nowt can go wrong. And it’s entirely possible that they think the spending is great because there won’t be any inflation. But I think the way to bet is that they’re dismissing the inflation possibility because they love the spending.

That is, the inflation surely won’t happen crowd are talking their own political book which isn’t, quite, the way to do economics.

12 thoughts on “Once off or start of a trend?”

  1. It’s not inflation but inflation expectations that government must fear. QE has distorted debt markets so they think they can borrow at ultra low rates for ever.

  2. In the lae 1990’s there was talk of a paradigm shift in the stock markets, otherwise how could they remain so high? But the markets caught up with this, and they fell. Sooner or later, all this stimulation of the economy with lead to inflation. Though some of the price changes we are seeing now are because of bottlenecks which may be resolved, I can’t see a future without an increase in inflation.

  3. Been wondering when the wheels were gonna come off this clown car since 2008.

    But I’d be surprised if TBPB are surprised, surely inflating away the insane and unpayable debts they’ve rung up was the plan all along?

  4. My feeling is that money printing in developed countries manifests itself in a different way to money printing in poorer undeveloped ones. In the former it tends to purely result in a rise in asset prices rather than consumables, and in the latter the other way around. In a poor country everyone wants bread (and the basic consumables of life) and thats what gets bid up once the money hits the streets. In the West everyone wants assets and thats what they spend their extra £££ on, housing and financial assets.

    So my prediction would be rampant asset inflation, coupled with moderate to average consumer inflation. Which will of course encourage the authorities to print even more money. This cycle will continue until some Minsky moment occurs where everyone realises the emperor has no clothes and there is a total collapse in confidence in the currency overnight. People who accepted fiat currency on Friday will refuse on Monday.

    Thats my prediction – money printing in developed modern Western economies will inevitably result in collapse in the currency, but it won’t be a slow process, it will happen in an incredibly short space of time with no real warning signs at all, bar the rampant asset inflation, which we have all become inured to anyway.

  5. @Jim. Your scenario assumes a stable global economy with economic woes/mismanagement and inflation localised to a single or handful of basket-cases. Currently every Country is climbing into the basket, so the problem for one or two Countries will not be counterbalanced by the rest in good shape.

    Countries import/export a lot of food and goods, if Inflation hits everyone, the import/export activity falls away globally. If so it won’t just be assets that go up in price.

  6. The official inflation numbers exclude energy & food prices because (we are told) they’re too volatile & would make the measurement less useful. As it happens, at this time food & energy prices are rising much faster than the official inflation numbers. Oh, and just by the way, they’re more important to most people.

  7. Not quite wholly so. The official numbers include both – CPI does, PCE does. It’s “core” CPI which does not, “core” PCE.

    The usual headline rate people quote is the one that includes. It’s the other one that is often more informative….

  8. Start of a trend – but to what level?

    Though initially there’ll be a sequence of isolated spikes, over the next 18-24 months, restricted to only certain components of the inflation indicators. Fr’instance, take a look at the S&P GSCI Agriculture (softs – soy, sugar, corn, wheat). Spiked up to 2011/12 levels, but annual highs are in the summer months anyway (May, June, July). There’ll be various bottlenecks in supply (no great prediction as it’s already happened – timber, cars, transport).

    One prediction – there’s a lot of kit got bought over 2020/21 that has batteries. Laptops, and what not. Those batteries would start to degrade due to the charging cycles in about 36 months. So there’ll be something there by 2024-ish.

    Inflation expectations would be high and volatile to about then – which maps to the US electoral cycle.

    If the apparent lack of inflation since about the mid-nineties is down to the Amazon Effect and the emergence of China, plus the use of social media for mining household wealth (second-, third-hand sales), then Biden’s stance on China could be dramatic, and regulatory pressures on social media and tech generally, haven’t gone away.

    Further, given the whole Amazon/Tech union thing, I’d expect the Biden administration or Blue States to muck about with minimum wage. And UK/Eurozone administrations would probably do something similar, probably towards the end of term, so 2024/25-ish again.

    Throw in a succession crisis in Russia or Saudi, spot of capital flight, robert’s your mother’s brother.

  9. Ducky… You forgot China in the succession crisis.. Pooh won’t live forever.. Then there’s the iranian gerontocracy, the indian/pakistani stalemate, the possibility of the NORKs starting their Final March, and…

    The world is nowhere near as stable as people would like to believe..

  10. The Covid year money-printing splurge has to come to an end. A temporary blip in inflation, then back to normal. Possibly a bit higher than normal (4% rather than 2%) as govts get a taste for spending.

    Some goods will actually fall in price as lockdown spending patterns shift and shortages resolve themselves (e.g. garden furniture).

  11. Grikath – Pooh and the Chinee have the CCP structures to work within, and they have their own longer term internal issues. The Norks are probably irrelevant – the Chinee won’t want them being disruptive in the region, and could get swatted by anyone knocking around there.

    Neither of the Pakistanis or the Indians are flogging gas to the Germans, and seem to fighting over where the ice cubes come from. China/India is more interesting.

    The Iranians have a structure with the Mullahs, the President/parliament, and the Revolutionary Guard. They’re also stuck with Russia to the north, over the Caspian, Saudis to the immediate west, plus Turkey. Turkey/Russia is curious, but Iran falls under the Russia/Saudi problem to my way of thinking.

Leave a Reply

Your email address will not be published. Required fields are marked *