The ‘Sticky’ Inflation Ahead for 2022

People walk outside of the New York Stock Exchange (NYSE) as global supply chain disruptions and persistent inflation continue to effect the American economy in New York City on Oct. 04, 2021. Spencer Platt/Getty Images

Commentary

As we are closing out 2021, the most significant economic development of the year is the jump in producer and consumer prices. As of last month, the rise of the latter year over year came in at 6.8 percent; the highest running 12-month tally in some four decades.

What is nearly as remarkable (so far) is that—though these surging living costs are hitting Joe Sixpack and Sally soccer mom sufficiently hard now that it is causing a major political headache for the Biden administration—for investors this is mere water off a duck’s back. Compared to the last major, sustained bout of price inflation 40 or so years ago, there is relatively little clamor for the Fed to “do something.”

Indeed, though everyone, their dog, and the fleas on the dog have known for a while what Federal Reserve Chairman Jerome Powell only recently admitted—that the central bank is way behind the curve on inflation—there is little worry. An incredible amount of blind faith remains in this man who has been spectacularly wrong in his prognostications; and will be again.

The latest of those is Powell’s insistence that inflation will moderate in 2022. I suspect that it will near term, if for no other reason than that the recent rise in energy costs will take a breather. So for a spell, the statistics may bear out Powell’s rejiggered prediction.

Powell and the Inflation Curve. Jerry King

Yet in the end it is MY prediction that—in the few months ahead—the CPI’s and PPI’s consolidation will see it staying well above the Fed’s purported long-run 2 percent target. Frankly, we will be fortunate if we plateau “down” (from recent levels) at 4 percent or so; a level so worrying back in the earlier 1970s that it prompted a series of wage and price controls from the Nixon administration.

There are numerous reasons why the recent inflation will remain “sticky” and continue to put the lie to Powell’s latest dismissive forecasts. In the days ahead I will be diving into these individually. For present purposes, the main ones are:

* Rising labor costs—The single-largest disinflationary factor of the last 40 years was the stagnation of wages for the average American. That is changing. On top of many states legislating higher wages via increased minimum wages, workers otherwise have more “pricing power” themselves than in half a century. In a variety of industries, companies are having to pay up to get help.

So—whereas I would even have been dismissive of such a prospect not that long ago—we do indeed now see the beginning of a 1970s-style wage-price spiral.

* Higher energy costs—The Biden administration simply put has set us up for a new energy crisis. Way before there are replacements in the form of electric vehicles and the like, Biden and the far-left influences he is enabling are starving financially and making pariahs politically of oil, gas, and coal companies we still need for many years to come.

More shortages and then renewed, rising prices are ahead. There are credible forecasts for crude oil specifically moving well above $100/barrel in the months ahead.

* Food inflation—Soaring costs for fertilizers (especially overseas, where in Europe food costs are REALLY soaring and shortages of many foodstuffs loom) transportation and other inputs will continue to push food costs higher.

Powell vs. Brainard. Jerry King

* Additional political pressure on the Fed to keep printing—Last but not least for this quick “lap” around the reasons why inflation will remain a nagging issue is that the Fed will itself remain under pressure to pursue the kinds of policies that will make it worse.

On top of what I’ve written recently, we will learn in the upcoming Senate confirmation hearings for Chairman Powell and Vice Chair-nominee Lael Brainard that the central bank will be expected to add to its “mandate.” Next, progressives especially will push for the Fed to “support” a fairer shake in housing and elsewhere for minorities of all kinds—to do what Congress and the White House have failed to do and underwrite “green” initiatives and the like.

All this is why Brainard has been tapped to be the new vice chair to begin with.

And folks: the Fed won’t be able to do those things by being “hawkish” and actually fighting inflation!