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Lacy Hunt at Hoisington Management has some interesting thoughts regarding the inflation debate.
In its Quarterly Review and Outlook for the First Quarter of 2021 Lacy Hunt makes a case for decelerating inflation.
Contrary to the conventional wisdom, disinflation is more likely than accelerating inflation. Since prices deflated in the second quarter of 2020, the annual inflation rate will move transitorily higher. Once these base effects are exhausted, cyclical, structural, and monetary considerations suggest that the inflation rate will moderate lower by year end and will undershoot the Fed Reserve’s target of 2%. The inflationary psychosis that has gripped the bond market will fade away in the face of such persistent disinflation.
After declining 5.2% in 2020, or the most since World War II, world-wide real per capita GDP is estimated to rise 4.7% in 2021. The United States will perform even better, rising 6.2%, after a contraction of 4.9% in 2020. The U.S. growth rate this year could be the fastest since 1984 and possibly even since 1950 (Chart 1).
Five considerations suggest that such growth is not likely to lead to sustaining inflation.
Lacy said 5. I added a 6th bullet point from his discussion, then added 2 more points of my own.
Inflation is a lagging indicator, as classified by the National Bureau of Economic Research. The low in inflation occurred after all of the past four recessions, with an average lag of almost fifteen quarters from the end of the recessions. (Table 1 Inflation Troughs Below)
Productivity rebounds in recoveries and vigorously so in the aftermath of deep recessions. This pattern in productivity is quite apparent after the deep recessions ending in 1949, 1958 and 1982 (Table 2 Below). Productivity rebounded by an average of 4.8% in the year immediately after the end of these three recessions and unit labor costs were unchanged. The rise in productivity held down unit labor costs.
Restoration of supply chains will be disinflationary. Supply chains were badly disrupted by the pandemic. Low-cost producers in Asia and elsewhere were unable to deliver as much product into the United States and other relatively higher cost countries. This allowed U.S. producers to gain market share. As immunizations increase, supply chains will be gradually restored. Thus, the pandemic cost the low-cost producers market share which was shifted to domestic producers. The pandemic did far more for domestic firm’s
Accelerated technological advancement will lower costs. Another restraint on inflation is that the pandemic greatly accelerated the implementation of inventions that were in the pipeline. Necessity is the mother of invention, as has been demonstrated in earlier crisis situations like wars. Thus, the technology du jour is not the same as the technology of a year ago. This will also serve to act as a restraint on inflation. Much of the technology substitutes machines for people, communication without travel, and work without offices.
Eye popping economic growth numbers, based on GDP in present circumstances, greatly overstate the presumed significance of their result. This is where the fallacy of the broken glass comes into play. Many businesses failed in the recession of 2020, much more so than normal. As survivors and new firms take over their markets, this will be reflected in GDP, but the costs of the failures will not be deducted.
The two main structural impediments to traditional U.S. and global economic growth are massive debt overhang and deteriorating demographics both having worsened as a consequence of 2020.
Lacy is talking about "inflation" as measured by the BLS.
I am in 100% agreement with every point.
Thus I expect bond yields to soon peak if they have not done so already.
The above viewpoint is not incompatible with my March 12 post Inflation is Poised to Soar, 3% by June is "Almost Certain"
Year-over-year comparisons produce very large numbers, up and down, heading in and out of recessions.
I commented "It's not that inflation will be rampant. Rather, it's the impact of year-over-year comparisons, goosed by a huge Covid-related dip in energy prices in April and May of 2020."
I also commented A Producer Price Index Inflation Spike Is On The Way Too
The rationale is the same. And as noted Gas Prices Are Soaring, I Pay $3.28, How Much Do You Pay?
On March 30, I commented Hello Fed, Inflation is Rampant and Obvious, Why Can't You See It?
Q: Has my view change?
Q: Is it inconsistent?
A: Lacy is talking about "inflation" as measured by the BLS. I addressed home prices in detail substituting home prices in the CPI for Owners' Equivalent Rent (OER) in the CPI.
I stand by that measure of inflation and it's out of control.
The Fed blew another set of bubbles and did so on purpose.
Lacy came up with six excellent reasons to expect lower inflation. To those we can easily add two more.
The expansion of bubbles is highly inflationary and popping is the reverse.
Please note the Largest Increase in Margin Debt Since 2007 Fuels Stock Market
What happened in 2000 and 2007? I think you know the answer to that question.
Bubbles inevitably pop and the result, by definition, is not inflationary.
Tax hikes are hugely disinflationary. Look at where we are headed.
Not all of those tax hikes will pass but some of them will.
Biden wants to increase the corporate tax rate to 28% from 21%. Look for a compromise at 25% or so.
Progressives want huge tax hikes, via reconciliation, some of them will get through.
These tax hikes are very recessionary and disinflationary.
Finally, please note It's Been One Heck of a Recovery in Low-Paying Zoomer Jobs
That's not a big inducement to higher inflation either.
Add it all up and you have 8 reasons to expect inflation will soon peak.
Former PM at centre of storm over ‘multiple’ approaches to Rishi Sunak
American golfer BIll Horschel won't soon forget the 13th hole at Augusta during Saturday's action at the Masters after being caught on camera uttering an expletive shortly before SLIPPING down a hill in a bizarre series of events.
Horschel was already enduring an ignominious start to Saturday's play after squeaking past Friday's cut, but found himself struggling at five over par after both his short and long game appeared to desert him on one of the sport's biggest stages.
Little could prepare him for what he would experience on the 13th hole, with two separate incidents being caught on camera which have since spread like wildfire across social media.
The first came in the seconds after his tee shot on the 13th when, apparently unhappy with the direction his ball was travelling, Horschel bemoaned what he saw as a "sh*tty bounce".
"What a sh*tty bounce. What a sh*tty f*cking bounce," he said, in words which were picked up by television camera and broadcast live to an audience of millions watching from the comfort of their homes.
Horschel's antics on the 13th didn't end there after his approach shot skidded off the green and plunged into Rae's Creek.
Man down at Augusta. 😳 pic.twitter.com/pWsA9W9WOk— Golf Digest (@GolfDigest) April 10, 2021
Can't believe I'm saying this, but everyone needs to be watching Billy Horschel on Featured Groups right now. Non-stop action.— Garrett Morrison (@gfordgolf) April 10, 2021
He took off his shoes and socks and – well, appeared to slightly underestimate the gradient as Phil Mickelson looked on.
There were soon signs, though, that Horschel's luck might be about to turn, as the shot he took from the shore of Rae's Creek after his slip was a beauty, landing a few feet from the pin before he ultimately salvaged par.
This may well be the last action we see from the 34-year-old American at the Masters, though.
At the time of writing, he remains +4 – some 11 shots behind the leader, England's Justin Rose.
Two Virginia police officers are being sued by a US Army lieutenant after they were caught on film seemingly threatening and pepper-spraying the black man during a traffic stop after he repeatedly refused to exit his vehicle.
In a December 2020 bodycam video, which went viral after appearing online this week, officers Joe Gutierrez and Daniel Crocker could be heard ordering US Army Medical Corps Second Lieutenant Caron Nazario to leave his SUV over 40 times.
Nazario, however, did not comply and instead asked the officers what he was being stopped for and protested, "I'm actively serving this country and this is how you're going to treat me?" After claiming he was "afraid to get out" of his vehicle, one of the officers responded, "You should be, get out."
These cops should be arrested tonight https://t.co/3EoHphZxyG— Brandon Friedman (@BFriedmanDC) April 10, 2021
After he refused the order, one of the officers then sprayed Nazario in the face with pepper spray several times before telling him, "You made this way more difficult than it had to be if you'd just complied. Get out of the car!"
Nazario eventually complied with the order, but then refused to get on the ground, instead asking the officers what was going on. The officers could then be seen trying to get Nazario on the ground as he resisted and tearily called the situation "f*cked up."
This is disgusting, un-American, abusive, racists, and NOT representative of 99% of the men and women serving honorably in #Virginia as troopers, officers and sheriffs.— David I. Ramadan (@DavidIRamadan) April 10, 2021
Throw these two off the force and make sure they are never hired again in any uniform anywhere —period. https://t.co/aeYHdGts0N
Nazario is suing the two officers for allegedly violating his Constitutional rights, claiming he was racially profiled during the traffic stop, and referenced the words used by one of the officers – in particular the accusation that he was "fixin' to ride the lightning," which is reportedly a reference to execution by the electric chair.
The police, however, reportedly stopped Nazario for having no rear license plates on the vehicle, though Nazario had a temporary license plate "taped to the inside of his rear window," according to Vice News.
They also accused Nazario of "eluding" them, as he spent just under two minutes driving to a gas station before stopping, and also complained about the vehicle's tinted windows.
Gutierrez – a military veteran himself – claimed in his police report that he did not charge Nazario because he didn't want to ruin his career over an "erroneous decision," but Nazario's lawsuit claims he was told to "chill and let this go" following the incident or face charges.
As the video went public, many on social media scrambled to criticize the officers' behavior, calling it "disgusting," "un-American," and "abusive," and demanding that the two policemen be fired.
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