US customers have burned via their stimmy checks and at the moment are furiously maxxing out their bank cards to pay for…
by John Rubino of Greenback Collapse
Immediately’s inflation report was, by any measure, horrific. 7% in a rustic the place 2% was, till just lately, the higher finish of the federal government’s goal vary, just about ensures some type of aggressive response from the Fed (or the bond or foreign money markets or the entire above).
Right here’s the Wall Road Journal’s tackle the state of affairs. See in the event you can spot the flaw in its reasoning:
Excessive inflation is the darkish facet of the unusually robust financial system
Kathy Bostjancic, chief U.S. monetary economist at Oxford Economics, stated what began as pandemic-specific inflation has now “broadened out throughout many, many classes each on the products facet of the financial system and on the providers facet.”
“It displays provide constraints each within the items market and the labor market but it surely is also a operate of nonetheless robust demand, notably from U.S. customers,” she added.
Right here’s the flaw:
“… it is also a operate of nonetheless robust demand, notably from U.S. customers.”
If this financial system relies on strong client spending, then the expansion inflection level has already handed. From MarketWatch:
Client-credit progress subsides in December after rocketing larger in prior month
Client borrowing rose at a 5.4% annual charge in December, down from a revised 10.7% acquire within the prior month, which was the most important acquire since July 2011.
Key information: Revolving credit score, like bank cards, rose at a 2.4% charge in December after a 22.8% acquire within the prior month. The November acquire was the most important since April 1998.
The upshot: Inflation is unquestionably raging. However US customers have burned via their stimmy checks and at the moment are furiously maxxing out their bank cards to pay for all these suddenly-way-more-expensive requirements. A life financed with bank cards is inherently a short-term affair, and the top is quickly approaching.
So it’s solely doable that by mid-year the massive story might be not hovering inflation, however crashing client spending. And the Fed might be reacting not with “shock and awe” rate of interest hikes however equally dramatic cuts.