The High Price Of Price Uncertainty

Anyone searching for evidence of a rebound in consumer sentiment in late October was disappointed Friday. Or as disappointed as one can be about data when the next day is Saturday. The final print on University of Michigan sentiment for October was 71.7, virtually unchanged from the preliminary reading. It was notable not only for what it said about the state of consumer psychology headed into the holiday shopping season, but also for the contrast with the Conference Board's gauge, which impro

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3 thoughts on “The High Price Of Price Uncertainty

  1. IDK. It seems pretty clear that inflation is driven partly by supply bottlenecks – and while these have taken longer than expected to resolve, you’d think we’ll get there eventually.

    But most of all, it seems inflation was driven by abnormally high demand for goods – as a consequence of gvt cash distributions and the lower demand for services.

    As gvt money runs out, one ought to expect excess demand to dissipate and thus inflation to resolve itself.

  2. So many moving parts.

    The fiscal impulse in the US will turn negative in 2022. I don’t think the BBB changes that. Similarly in the other, mostly OECD, countries that went big on pandemic fiscal stimulus. China is, as oft-discussed here, doing a similar thing for dissimilar reasons.

    The monetary stimulus globally is staring to be withdrawn. The Fed will join by year-end, I imagine ECB will follow, and the bond market is front-running official action.

    It is difficult for me to see how a substantial part of the OECD labor force (can afford to) remain on hiatus for any extended time. There has been some permanent loss from early retirement and persons rethinking their lifestyle, and likely some lasting loss from long Covid.
    Some in the labor force are seeing wage increases (a good thing I think), but the labor content of COGS for most goods isn’t that large.

    Covid disruption to production/logistics will remain an inflationary factor, so long as China sticks to its zero-Covid ambitions, as will any shortening of supply chains.

    Energy supplies will remain tight to various degrees. Will oil, NG, LNG, coal, etc prices keep rising, as opposed to merely remaining elevated?

    All in all, I am in the “non-lasting” inflation camp. That sounds better than “transitory”.

    Anyway, every media outlet and shoeshine boy is talking about inflation already. I think a 1H22 economic slowdown is now the risk that needs to get more fully discounted.

  3. A very complex global economy suffered a severe and widespread jolt from a pandemic (and it still continues). There is no playbook for how to subdue all the various components that have become unmoored. There are bound to be more distortions that won’t yield to one dimensional fixes like raising interest rates. How many years will it take for someone to get a Nobel prize for explaining what should have been done.

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