Image Source: Pixabay

We’ve spent quite a bit of time analyzing the inflation situation in the U.S. lately.

By quick way of review:

1. The only inflationary data that has dropped is in the energy space (that and used cars).
2. The only reason energy prices have dropped is because A) China was in lockdown for Zero Covid and B) the Biden administration dumped 250 million barrels of oil onto the market.
3. Both A) and B) are over. China has reopened and the Biden admin has already depleted the U.S.’s emergency stash of oil by 40%… as a result of this oil and gasoline prices have bottomed and begun turning upwards again.

All of the above signals that inflation has “not peaked” no matter what the media claims. Indeed, if the latest news is anything to go by, inflation has now become fully entrenched in the financial system.

Welcome to the wage spiral in the U.S.!

The first signs of this appeared during the rail worker deal the Biden administration signed into law. Nestled amongst the various details of the deal was a 24% pay increase from 2020 through 2024 as well as immediate payouts of $11,000.

Bear in mind, this is a 24% pay increase that was signed into law in at the end of 2022. So, the 24% pay increase would actually be over the next two years, or 12% per year.

This is not an isolated incident either.

Walmart (WMT), the single largest private sector employer in the U.S. (and the world) just announced it is raising its starting wage by 17%.

These are not small increases. And they indicate a wage spiral is beginning in the U.S.

Why does that matter?

A wage spiral is the Fed’s worst nightmare because there is NO easy solution. The only thing that can stop it is a SEVERE recession that features mass layoffs and a sharp rise in unemployment.

So we can all kiss that “soft landing” narrative goodbye.

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