Inflation Is Harming The Recovery

Time, Time Management, Stopwatch, Industry, Economy

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This week, Ned Davis Research published a note titled “turns out, growth looks like it was transitory – inflation is more sticky.” There are many factors that show us that consumers and salaries are being eaten away by inflation, leading to an abrupt halt in the recovery. Autos and new home sales plunged, real disposable personal income has plummeted, and real median wage growth is lower than inflation.

Policymakers have pushed inflation at any cost with the most aggressive monetary policy in decades, and it took a normal recovery after the re-opening to prove why inflation is always a monetary phenomenon: In 2020, G7 central banks increased money supply well above demand and faster than ever since 2009. This led to massive inflation spikes in essential goods and services.

The rhetoric of “transitory” inflation and “supply chain disruptions” has been rapidly debunked. We have seen three CPI (consumer price index) prints after the base effect ended and prices continued to rise.

Furthermore, the price of commodities where there is overcapacity has risen as fast as others. Inflation is always more money chasing scarce assets and that is the reason why we see shipping or aluminium rise to all-time highs when there is ample capacity in the segment, even excessive capacity.

Monetary history shows that policymakers always resort to the same excuses when it comes to printing money and monetary mismanagement: First, say there is no inflation, second, say it is transitory, third, blame businesses, fourth, blame consumers for overspending, and finally present themselves as the “solution” with price controls which ultimately devastates the economy.

In the United States, median wage growth has been more than offset by inflation, and in the Eurozone, wage growth plummeted in July. In fact, the risk in the Eurozone is higher as average hourly wages fell in year-on-year terms in the second quarter.

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