Inflation Cools (For Now), Stag Awaits

To maintain the inflation, a cooling of inflation was needed

That is one of those Alice in Wonderland-like statements, like the one I’ve got tattooed on my left forearm: “Contrary-wise, what is it wouldn’t be and what it wouldn’t be it would, you see?”

To maintain inflationary policy, as per various talking Fed (egg) heads, the hysterical run-up in inflationary expectations and fears had to be tamped down. And so, Google users have indeed eased their neuroses right along with a recent tamping of inflationary hysteria.

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google search

While inflation expectations ease but remain on trend.

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rinf, inflation expectations

And the Philly Fed’s gauge of manufacturing activity retrenches within a still up trending situation.

philly fed

Anecdotally, respondents still appear positive (ref. link above) even as they chase rising cost pressures from materials and labor down the rabbit hole with their own price increases. They believe their price increases will compensate for rising input costs and they remain optimistic about growth. That is, after all, the trick the Fed had up its sleeve in H1 2020, when it began creating this epic inflationary operation. Confidence.

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Philly Fed is just one of many examples of the cost-push problem hitting the US economy. I was a US manufacturer and I will tell you that these respondents are simply following a monkey see, monkey do regimen. Monkey see rising costs, monkey do raise prices. Until it is no longer so easy for monkey to simply pass along costs within the economy. Then…

…the inflation will pivot Stagflationary from the heretofore ‘good’ inflation it’s been for the last year.

From Yardeni, the Citi Economic Surprise Index (CESI) is guiding Wall Street analysts in a southerly direction and that is indeed what the Stag will bring when the inflation shows the other side of its face, the dark and economically ruinous side.

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