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All Inflation is Transitory

All Inflation is Transitory

November 04, 2021
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Inflation is here but for how long?  The great semantic debate is whether this inflation is transitory.  The answer is:  Yes, it just depends on what your definition of “transitory” is (thank you Bill Clinton!).  Everything is transitory, nothing lasts forever.  We believe inflation is here for at least another year.  Self-inflicted supply chain issues are causing inflation.  Port back-ups are causing inflation.  Tons of extra cash provided by our government is causing inflation.  Lack of truck drivers to deliver goods is causing inflation (due to extreme unionization at some ports).  Everyone is fighting for employees now, and the OSHA requirement for vaccinations will only exacerbate this issue.  Food costs are up.  Fuel costs are up, again self-inflicted (the US should be exporting oil, but production has been reduced due to the Biden administration limits on fracking and pipelines).   

 

Inflation is a tax on the poorest members of our society.  Yes, wage inflation should help these people – since demand for employees is up, they will be getting paid more for their work.  However, inflation tends to create more inflation:  prices are higher creating increased wage demand, creating higher prices, creating higher wages. . . The Fed hopes to counter inflation by increasing interest rates sometime in 2022 (they announced a tapering of their bond purchases yesterday).    Unfortunately, this is just “pushing on a string.”  The Fed hopes to curb inflation by raising rates, causing lending prices and interest rates to go up, hopefully taking risk out of the market and reducing inflation (less risk because the cost of borrowing goes up and less inflation because higher interest rates encourage people to save).  Changing risk appetite and encouraging savings is not an overnight solution and it is not clear how the markets will react, therefore “pushing on a string.”

 

So yes, inflation is transitory.  Nothing lasts forever, although sometimes it may seem that way.

 

Ozymandias

Percy Bysshe Shelley

I met a traveller from an antique land,

Who said—“Two vast and trunkless legs of stone

Stand in the desert. . . . Near them, on the sand,

Half sunk a shattered visage lies, whose frown,

And wrinkled lip, and sneer of cold command,

Tell that its sculptor well those passions read

Which yet survive, stamped on these lifeless things,

The hand that mocked them, and the heart that fed;

And on the pedestal, these words appear:

My name is Ozymandias, King of Kings;

Look on my Works, ye Mighty, and despair!

Nothing beside remains. Round the decay

Of that colossal Wreck, boundless and bare

The lone and level sands stretch far away.”