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Inflation Remains A Big Worry Although 10 Year Yield Dips Below 1.50%
Week ending June 11th, 2021
As being anticipated inflation has been on the rise with new data points pointing towards the rise. But the question is not about the direction of the inflation. We all are trying to forecast the persistence and magnitude of the future inflation.
We are watching the economic expansion in combination with ultra accommodative monetary policy and the fiscal push. So the historic parallels are difficult to find and one should not base his/her thesis based on any closely resembling scenarios of the past. Even if somebody argues about any similar historic scenario, world has changed a lot due to technology over the years.
The most important factors are tight labor market, wage growth followed by materials costs which will determine the duration/persistence and magnitude of the future inflation. Recently wages have been rising along with materials costs, and are expected to rise further. Some argue that wages will stop rising more in the 4th quarter when benefits go away and increased labor supply will dampen the further rise in wages. But I think wages are bound to rise until commodity prices cool down.
I think once we hit a new high say 3%, forward path of inflation will be much steeper than being anticipated if unattended by Monetary policy makers proactively.
Sometimes I think, Fed is intentionally letting all this to happen and hoping for some old normal to return, as the world has already been living at zero bound. I think we need to wait till 4th quarter before we move up the certainty level and meanwhile one should think of the future inflation as somewhat in between most understood meanings of transitory and persistent inflation.
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By Jaspreet Singh PaddaWeek ending June 11th, 2021
As being anticipated inflation has been on the rise with new data points pointing towards the rise. But the question is not about the direction of the inflation. We all are trying to forecast the persistence and magnitude of the future inflation.
We are watching the economic expansion in combination with ultra accommodative monetary policy and the fiscal push. So the historic parallels are difficult to find and one should not base his/her thesis based on any closely resembling scenarios of the past. Even if somebody argues about any similar historic scenario, world has changed a lot due to technology over the years.
The most important factors are tight labor market, wage growth followed by materials costs which will determine the duration/persistence and magnitude of the future inflation. Recently wages have been rising along with materials costs, and are expected to rise further. Some argue that wages will stop rising more in the 4th quarter when benefits go away and increased labor supply will dampen the further rise in wages. But I think wages are bound to rise until commodity prices cool down.
I think once we hit a new high say 3%, forward path of inflation will be much steeper than being anticipated if unattended by Monetary policy makers proactively.
Sometimes I think, Fed is intentionally letting all this to happen and hoping for some old normal to return, as the world has already been living at zero bound. I think we need to wait till 4th quarter before we move up the certainty level and meanwhile one should think of the future inflation as somewhat in between most understood meanings of transitory and persistent inflation.