Is Inflation Coming?

“As reopening progresses, there are significant price adjustments to come in mobility-linked sectors of inflation, and that should come alongside goods inflation that remains elevated through mid-year as inventories and supply chains remain constrained. Not all pressures in 2021 are transient, and in 2022 inflation intensifies on a tightening labor market and robust levels of demand.”

  1. Continued: “The bulk of inflationary pressures this year will reflect transient developments driven by COVID-related distortions as economic activity begins to normalize. Multiple rounds of fiscal stimulus and excess savings provide a powerful tailwind of buying power that has been building among US households – ready to be deployed as the economy is reopening.”

  1. And… “One COVID effect on activity has been to shift spending away from services and into goods sectors. As a consequence, in those areas where demand has accelerated, inflation has also accelerated. That has been exacerbated by the fact that strong demand for goods has led to lean inventories – evidenced by the fact that over the four quarters through 4Q20, the level of real nonfarm inventories was down 3%, while real final sales of goods were up 3.2% from a year earlier.”

  1. Lastly, “In addition to inventory imbalances and demand shifts creating inflationary pressures in the goods space, there are additional tailwinds to inflation emanating from a lower foreign exchange value of the US dollar. Already the depreciation in the dollar over the last year has shown up in higher import prices, which will likely pass through the inflationary pipeline into consumer prices as well. While dollar impacts on inflation may also be seen as transient, they can have longer tails – a simple simulation of the effects of a 10% depreciation in the value of the dollar shows these effects can remain in place for a number of quarters.”
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Disclaimer: All statements are solely opinions and are for educational purposes only.

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