What If Disinflation Turns Out To Be Transitory?

Authored by Jesse Felder via TheFelderReport.com,

Inflation has come down a great deal from its peak, but what if that disinflation turns out to be transitory?

‘The easy lifting on core has been done. Due to base effects core will still drop next month, but after that it is going to get difficult.’ https://t.co/hVoZAOyNQ3 by @inflation_guy

— Jesse Felder (@jessefelder) September 13, 2023

Certainly, there are important dynamics in commodities markets today that threaten to make the Fed’s job much harder.

‘As in 1973-74, during the first oil shock when the Saudi grade was the market’s main benchmark, central banks need to watch the cost of Arab Light to judge the outlook for inflation. As thing stand, the picture isn’t pretty — and it’s getting worse.’ https://t.co/SvWfr2GC5q pic.twitter.com/cbDoZPBP1n

— Jesse Felder (@jessefelder) September 14, 2023

In addition, a rising dependency ratio represents a structural tailwind to the inflationary impulse.

Aging demographics = higher inflation https://t.co/V6k6Zf6SU3 via @SoberLook pic.twitter.com/Xrx6GLKFiq

— Jesse Felder (@jessefelder) September 11, 2023

Meanwhile, the inflation already incurred by the economy may soon threaten the integrity of the “soft landing” narrative.

‘Classical economists believe high unemployment leaves people with less money to spend, and so the economy slows which brings prices down, curing inflation. The real relationship is that high inflation brings high unemployment.’ https://t.co/SRFoWSDRb0 by @McClellanOsc pic.twitter.com/u2wei5TreF

— Jesse Felder (@jessefelder) September 14, 2023

Of course, the message from the bond market has not wavered. And, unlike economists, it has a perfect track record.

‘The US bond market hasn’t flashed recession warnings so consistently for so long in at least six decades.’ https://t.co/AvgfYOTftj pic.twitter.com/XKDYKJjTYx

— Jesse Felder (@jessefelder) September 14, 2023

Perhaps it’s time for the “stagflation” narrative to make a comeback.