I Told You So
Im human, when I am right I like to take that short parade around town telling everyone I am right and this column is on my parade route.
Several weeks ago I had written a Substack about true inflation and how, I felt, the government was misreporting it. Lo and behold, it is now the number one trending item on Twitter. Not really, but you get my point, it is becoming a major worry for investors and for Fed officials as well.
Ah, you say, one bad report doesn’t constitute a trend but it is not the latest CPI I am talking about, it’s the actual, on the ground inflation that is real. Prices of practically everything have gone up way more than is acceptable and while there are legitimate reasons for this inflation, it still doesn’t help the consumer all that much.
People’s viewpoints at this juncture are skewed more towards,”I don’t care what it costs, as long as I can buy it” as opposed to, “What is going on? Why is everything so much more expensive?” This will pass and there will be a realization that we are at the beginning of what could be a very serious inflationary spiral.
I have always believed that true inflation was caused primarily by wages rising faster than the inflation rate. One tends to catch up to the other and eventually you have spiraling inflation. We aren’t at that point yet but we are getting there.
With the labor market at such a disjointed spot ( we have eight million jobs unfilled, nine million unemployed) businesses will have to pay more to lure workers back and off of unemployment. While I am adept at taking bows for being right, I can also admit when I may have been wrong. I thought that the lure of being productive would supersede free money from unemployment. Apparently not. Time will tell.
Small businesses that are looking for workers will have to pay more to attract those workers and at some point will have to pass those costs on to their customers. At this point in this recovery, higher prices are being taken as the cost of recovery. Consumers mindset again is about getting what they want and prices be damned. This won’t last. As the economy rebalances, consumers will be more discerning and return to normal purchasing patterns but for the next several months, it will be a free for all.
What will the Fed do? That seems to be another trending topic on Twitter and with near zero rates, they have a lot of quivers to combat inflation but will they use them? My gut tells me that it will take several months of rising inflation(True or otherwise) before they act. Some level of inflation is actually healthy (2-2 1/2%) and we have been under that imaginary Fed target for years. Now we might float above that level for a bit and the Fed may feel that prices and wages will need to readjust to this higher level. They can act at anytime to try and slow the economy down but, as I have said, we are in an unusual period in economic history. We are readjusting to an economy that was running at full steam only to be knocked off the rails. Some trains are back on the track trying to gain momentum. Some trains are leaving empty, some full. Does the Fed want to potentially derail the economy before it reaches full momentum again? If I were a betting man I think you will hear typical Fed-speak. “We are closely monitoring the data and act when we feel it’s prudent to do so”. Until then, buy what you can now before prices go up again.