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Inflation Rearing Its Ugly Transitory Head
The consumer price index is up 5.4% versus a year ago and up at a 3.5% annualized rate since February 2020, pre-COVID. The Fed's preferred measure of inflation, the PCE deflator, was up about 0.7% in June, putting the Fed’s measure up 4.1% from a year ago and up at a 2.9% annualized rate versus February 2020. Then the Fed reported that the U.S. economy hit a near-record pace in Q221, as GDP rose an annualized 6.5% sequentially, up from 6.4% in the prior period, fueled by vaccinations, untethered demand for services and a mix of government and Fed stimulus. The M2 measure of the money supply has soared 32% since COVID hit, something that didn't happen during or after the Financial Crisis in 2008-09. Those assuming inflation gets back to a roughly 2.0% trend in 2022 are in for a rude awakening.
Even with hospitalizations and deaths remaining way down versus previous spikes, the media is amplifying any negative news on the "Delta" variant that might cause some places around the country to re-tighten limits on economic activity and schools later this year. Meanwhile, policymakers are fighting about two measures to increase federal spending over the next several years. The first measure is a bipartisan infrastructure deal to raise spending by about $1 trillion, although some of the spending may be repurposed from other programs. The other measure will boost spending by $3.5 trillion over the next several years.
Regarding inflation, Fed chairman Powell, said it is being fueled by increasing demand seeking insufficient supply (a consequence of production slowdowns due the pandemic – think automotive) and that employment has yet to catch up. He believes that short term, inflation will have positive effects on job growth and that it will end when supply catches up.
The consumer price index is up 5.4% versus a year ago and up at a 3.5% annualized rate since February 2020, pre-COVID. The Fed's preferred measure of inflation, the PCE deflator, was up about 0.7% in June, putting the Fed’s measure up 4.1% from a year ago and up at a 2.9% annualized rate versus February 2020. Then the Fed reported that the U.S. economy hit a near-record pace in Q221, as GDP rose an annualized 6.5% sequentially, up from 6.4% in the prior period, fueled by vaccinations, untethered demand for services and a mix of government and Fed stimulus. The M2 measure of the money supply has soared 32% since COVID hit, something that didn't happen during or after the Financial Crisis in 2008-09. Those assuming inflation gets back to a roughly 2.0% trend in 2022 are in for a rude awakening.
Even with hospitalizations and deaths remaining way down versus previous spikes, the media is amplifying any negative news on the "Delta" variant that might cause some places around the country to re-tighten limits on economic activity and schools later this year. Meanwhile, policymakers are fighting about two measures to increase federal spending over the next several years. The first measure is a bipartisan infrastructure deal to raise spending by about $1 trillion, although some of the spending may be repurposed from other programs. The other measure will boost spending by $3.5 trillion over the next several years.
Regarding inflation, Fed chairman Powell, said it is being fueled by increasing demand seeking insufficient supply (a consequence of production slowdowns due the pandemic – think automotive) and that employment has yet to catch up. He believes that short term, inflation will have positive effects on job growth and that it will end when supply catches up.
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