Some may say that a loose monetary policy that can just continue to print money whenever it feels like it to prevent a market collapse would always lead to trouble, and to those people I say you are god damn right. The Consumer Price Index (CPI) will be releasing new statistics today and we can expect to see real issues facing society.
The consensus estimate is that inflation would have grown by to 3.6% – an eyewatering moment for anyone worried about the rate of inflation in society. Pre-Covid, numbers like these would cause FED policy to change dramatically and increase rates to prevent the kind of inflationary spiral the likes of which we haven’t seen in decades from occuring, yet, there appears to be very little interest from the central bank.
Why? Well, as the CPI is a basket of weighted goods for the average individual, it can be at risk of being overly effected by a few supply shocks every once in a while. As we know, the shortage of semi-conductors, fuel and low paying workers are becoming common themes in the markets at the moment and they are sure to have an impact on the inflation rate.
Should we be worried? Yes. The unemployment rate is driven massively by perverse incentives. It is now more economically beneficial to stay unemployed in America for some sections of society. To get them to work, the wages will need to be much higher and as a result these increased costs will be passed onto the consumer through higher prices. So long as this equation continues we will face problems.
Jim Cramer linked below talks about the issues he is facing with hiring people for his restaurant in NYC.
Also, if the inflation rate were to stay at three and a half percent as predicted and maybe even rise, an increase in the interest rate in the economy may cause valuations to spiral as many high growth stocks with large PE multiples are valued with low rates in mind.