Home Knightsbridge Insights Inflation: If consumers think prices are headed higher, they will buy goods and services today driving prices higher…

Inflation: If consumers think prices are headed higher, they will buy goods and services today driving prices higher…

by Paul Ebeling

#Fed #inflation #businesses #consumers #prices #employment

The Fed’s index of common inflation expectations is comprised of 21 different measures, none of which directly covers businesses“– Paul Ebeling

Fed Chairman Powell says controlling inflation expectations is Key to achieving the central bank’s goals of price stability and maximum employment.

The trouble is that the Fed can do little to control those elements as the economy emerges from the virus chaos.

Expectations among consumers vary depending on their age and gender and are not sensitive to what the Fed does and says.

What’s more, the attitudes of businesses, the most important players in the inflation process because they set prices are opaque in here, because there are few surveys of their thinking on the subject.

It certainly is difficult” to manage expectations, said former Fed Governor Randall Kroszner, who’s now a University of Chicago professor. “Especially when you don’t know exactly how to do it.”

Chairman Powell argues that the steep price rises will prove to be transitory and that expectations on the whole are where the Fed wants them. Longer-term projections have risen to “a range that’s consistent with what our objectives are,” he said on 16 June after policy makers mused about 2 increases in interest rates out in Y 2023 from their current setting near Zero.

Economists’ take on it is is that if consumers think prices are headed significantly higher, they will buy goods and services today rather than waiting until tomorrow, thus driving prices up even further.

Economist Bruce WD Barren says, “Inflation is caused when demand exceeds supply where during the pandemic production was dramatically reduced so supply became consolidated. However, now the consumer public believes that  the pandemic is over and product demand is back..

Fueling demand is also investable cash and employment. So, let’s look first at  investible cash which is a contributing factor to demand.

Well the stock market continues to reach new highs causing capital liquidity, and employment is going in the right direction with job vacancies exceeding unemployment.

An Atlanta Fed calculation suggest that businesses like consumers see faster inflation ahead. Firms in that district, which includes Florida, Georgia and Alabama, expect their unit costs to rise 3% on average over the next 12 months, the most since the monthly survey began in Y 2011.

To be sure, the recent shift in the Fed’s focus has calmed inflation concerns, at least in financial markets.

Have a positive holiday weekend, Keep the Faith!

You may also like


Your Trusted Source for Capital Markets & Related News

© 2024 LiveTradingNews.com – For The Traders, By The Traders – All Right Reserved.

The information contained on this website shall not be construed as (i) an offer to purchase or sell, or the solicitation of an offer to purchase or sell, any securities or services, (ii) investment, legal, business or tax advice or an offer to provide such advice, or (iii) a basis for making any investment decision. An offering may only be made upon a qualified investor’s receipt not via this website of formal materials from the Knightsbridge an offering memorandum and subscription documentation (“offering materials”). In the case of any inconsistency between the information on this website and any such offering materials, the offering materials shall control. Securities shall not be offered or sold in any jurisdiction in which such offer or sale would be unlawful unless the requirements of the applicable laws of such jurisdiction have been satisfied. Any decision to invest in securities must be based solely upon the information set forth in the applicable offering materials, which should be read carefully by qualified investors prior to investing. An investment with Knightsbridge is not suitable or desirable for all investors; investors may lose all or a portion of the capital invested. Investors may be required to bear the financial risks of an investment for an indefinite period of time. Qualified investors are urged to consult with their own legal, financial and tax advisors before making any investment. Knightsbridge is a private investment firm that offers investment services to Qualified Investors, Members and Institutions ONLY. Qualified Investors are defined as individuals who have met those Qualifications in the relevant jurisdictions. Members are defined as individuals who have been accepted into the Knightsbridge membership program. Institutions are defined as entities such as banks, pension funds, and hedge funds. If you are not a Qualified Investor, Member or Institution, you are not eligible to invest with Knightsbridge. All investments involve risk, and there is no guarantee of profit. You may lose some or all of your investment. Past performance is not indicative of future results. Knightsbridge is not a registered investment advisor, and this disclaimer should not be construed as investment advice. Please consult with a qualified financial advisor before making any investment decisions. By accessing this website, you agree to the terms of this disclaimer. Thank you for your interest in Knightsbridge.