On Inflation: Trends and Impacts
Global inflation is being driven by a mix of geopolitical and pandemic issues. The following chart and comments provide context.
With U.S. inflation at its highest level since 1982, this chart presents the trend from the mid-1950s to the present.
From “Americans Are Having an Inflation ‘Aha’ Moment” (Wall Street Journal)
“Plenty of people are having that "aha" experience while filling their gas tanks, opening a utility bill or looking for a place to live."
“The average cost of a one-bedroom apartment is up nearly 25% year over year."
“Home-lending costs are also rising; the average rate for a 30-year fixed mortgage topped 4% for the first time since May 2019."
“For Americans under 40, this is the highest inflation they have seen in their lifetimes."
From a survey of 2,200 people in the U.S (by Morning Consult, for the NY Times):
“Everything is going up, but our wages are not.”
“I can barely afford to drive to work and pay my bills.”
“Bacon is as expensive as filet mignon used to be.”
“Cold cereal has gone up, and the box has shrunk.”
“Gas. It’s painful at the pump.”
From "Farm Inflation Is Pointing to Costlier Grocery Bills Ahead” (Bloomberg)
“Farming profits worldwide are getting squeezed from every side, with higher costs for seeds, fertilizers, machinery, and labor is sending a warning that grocery bills are going to climb even higher.”
“Europe Frets Over Worsening Inflation Trend” (Bloomberg)
“Surging inflation has become a primary concern in Europe.
"The Russian invasion of Ukraine helped trigger an energy crisis that is driving up consumer prices.
"Inflation in the euro region hit a record 5.9%.”
OUR TAKE
Factors contributing to today’s inflation include 1) an extended period of low-interest rates, 2) high levels of government stimulus, 3) supply chain disruptions and 4) the Russia/Ukraine conflict.
With minimal consensus among central bankers about how long inflation will last and how to address it, the current trend may continue into 2023.
Many policymakers and investors are concerned that five-year bond yields could exceed those of 10-year bonds, This phenomenon, called an “inverted yield curve”, can be a warning sign of a recession - it last occurred shortly before the 2007-2008 financial crisis.