Economists and policymakers have the luxury of spending their days debating the meaning of the word “transitory” and the extent to which it’s applicable to readily observable evidence of inflation manifesting across the global economy.
Analysts and money managers enjoy similarly fortuitous circumstances. That is, by virtue of being secure in their employment, already rich or some combination of the two, they have the luxury of observing the situation from afar (or maybe “from above” is better).
For the folks mentioned above, inflation isn’t a personal concern unless it spirals so far out of control that everyday goods and services become unattainable. At that point, it scarcely matters. Hyperinflation in advanced economies would presage societal meltdown. Academic debates would be irrelevant.
Everyday people, on the other hand, experience inflation. They’re bedeviled by it at every turn. And that experience informs expectations. Experiences differ by education level and income cohort. Just ask some consumers. The Fed did (figure below).
The figure (above) is from the latest New York Fed consumer survey. The undereducated and those making less than $50,000 are concerned about inflation both over the next year and on a three-year horizon.
They experience inflation differently than those with higher educational attainment and higher incomes for a simple reason. Less educational attainment generally means lower income, and the less money you have, the higher the proportion of what you do have gets spent on items for which prices are rising the most. Items like food and gas.
The figure (below) is the UN’s food index plotted with the monthly change in the US CPI food at home basket.
Given all of that, it’s safe to say the majority of consumers find the “transitory” versus “permanent” debate laughable, assuming they even know that such a debate is taking place among people situated higher up in the social pyramid.
Not laughable because it doesn’t matter to them. Rather, laughable because of course it matters, but they don’t have time to consider it because they’re too busy just trying to get by to ponder whether they’ll be struggling less or more five years from now. Either way, they’ll be struggling.
The reality of this situation is totally lost on the top 10% in America. The vast majority of people struggle economically. The upper-middle class understands there are poor people and many wealthy families engage in philanthropy both at home and abroad. But there’s an entire middle stratum which isn’t destitute but is nevertheless constantly in fear of falling through the cracks. That’s most Americans. Chances are, the person you see getting gas next to you is struggling. Same at the grocery store. And so on.
This is yet another instance where even well intentioned economists, policymakers and analysts are totally detached from the real world.
“Let’s talk about inflation,” says the tenured economist. “Well, let’s look under the hood of this month’s CPI report,” says the analyst. “I ran a regression,” says the former trader now writing short blog posts for Bloomberg on the terminal. To which the proletariat says,
I can’t pay for your Substack letter because it’s half of this week’s grocery budget. I don’t get bank research because… well, now that you mention it, I don’t really even have a bank. I mean, I have a debit card. And a checking account. But there’s nothing in there usually, and I’d actually rather just get rid of it, because every month I get charged a fee for not meeting a minimum balance requirement, both of which seem to rise over time. And the only “terminal” I know is the terminal cancer my spouse died from in part because we couldn’t afford good healthcare. But none of that is your fault, so how about you go to Walmart with me and help decide how to split up the $65 I can afford to spend on food for three kids this week. Oh, and wear some comfortable shoes. Because it’s at least possible we’ll run out of gas on the way there. I couldn’t afford to fill up this week. In fact, can you drive?
It’s not quite “Let them eat cake,” because many of the people having the “transitory” versus “permanent” debate are, in fact, well-meaning. But empathy is impossible. I reiterate that point time and again because I think it’s important we recognize life’s harsh realities. You can’t empathize with someone in whose shoes you’ve never walked. And even if you have walked in their shoes, you still don’t know how they experience the same hardship you experienced. Empathy, in a strictly literal sense of the word, isn’t possible.
If you ask the 430 fund managers who participated in the October vintage of BofA’s Global Fund Manager survey, the odds of inflation being something other than transitory are rising. “Transitory” garnered the lowest percentage yet, while “permanent” grabbed 38% (figure below).
“A majority of FMS investors think inflation is transitory, but the gap between ‘transitory’ and ‘permanent’ continues to narrow,” the bank’s Michael Hartnett said Tuesday.
At the same time, stagflation concerns (represented in the survey by responses indicating expectations of below-trend growth and above-trend inflation) rose 14 points from September (figure below).
Although the majority of investors “still expect above-trend growth and above-trend inflation,” the 61% who expect a “boom” outcome is down from a high of 76% in June.
The bank used the word “fear” to describe the rising light blue line in the figure (above).
Something tells me that for the survey respondents, who together control $1.3 trillion in AUM, “fear” is a misnomer. Unless “fear” means worrying about a modern day peasant revolt.
“It’s a can of corn, how much could it possibly cost? $12?”