The best torsten Slok economist warns against an “mountain of inflation” in a potential rehearsal of the 1970s

Now, he sees a strange resemblance – almost a strange valley – between the mountain range of inflation in the 1970s and 80s and the 2021 inflation wave, more what could expect for the American economy. In his Daily spark Newsletter on August 31, Slok noted the upward pressure on the expectations of inflation and inflation of prices; Dollars depreciation; And an increasing disagreement within the federal market committee open to how to balance the increase in inflation with the slowdown in employment. (In a note entitled “Ghosts of 2007”, Bank of America Research observed that the Fed had rarely reduced the rates in the context of the increase in inflation.)

“The risks increases,” added Slok, “that we could see another” mountain inflation “emerge in the coming months.”

Emerging warning panels

The graph shared by Slok and Apollo juxtaposes the current path of the American basic CPI with periods of inflation from 1974 to 1982, illustrating a close similarity between the 1973-1974 inflation with that of 2021-1222. As the Slok arrows demonstrate, the first “inflation mountain” in the 1970s was followed by another, take off around 1978. If the diagram takes place, the economy would be due to another peak starting almost exactly in the fall of 2025.

Although Slok does not say it in its note, the “First Inflation Mountain” refers to the initial peak, while the “second mountain” represents the even steeper climb which followed several years later, driven by external shocks and fake politics.

Inflation fears assembly

These are not the first warnings on Slok inflation. At the end of August, he argued that the choice of words from Jerome Powell to the Jackson Hole Symposium – with the labor market is in a “curious balance” – made the Fed see structural distortions of prices and immigration policy. If these forces maintain sticky inflation and Powell reduces rates, because it is under pressure from the White House to do, Slok wrote that it could be vulnerable to a political “Stop -Go” error in the 1970s – the backdrop of the second mountain of inflation.

In such a scenario, recalling the 1970s, if the Fed policy is loosening prematurely, inflation could increase, leading to painful corrective measures observed under the severe recessions of Powell, which have increased rates in an aggressive and altered severe and double soaking.

Reading the most recent inflation, the personal consumer expenditure index, has shown that prices increased by 2.6% in July a year ago, the same annual increase as in June and in accordance with what economists expected. Excluding more volatile food and energy categories, prices increased by 2.9%, compared to 2.8% in June and the highest since February, with FortuneEva Roytburg reports that there was a withdrawal in expenses in discretionary categories. The wider consumer price index was flatter than expected at 2.7%, while the price index of producers was higher than expected, because the wholesale prices increased by 3.3%, both over the same period.

These warnings are involved as economists debate the form of the back of the 2020s, wondering if a recession is ahead or the “stagflation” which accompanied the mountains of the inflation of Slok’s analysis. UBS sees a high recession risk in difficult data in the US economy, 93% in July, although its average recession risk is much lower given its analysis of other conditions. However, he forecasts a “soggy” economy to come, a bit like research Bank of America.

JPMorgan was alarmed by the report on shocking jobs in July, saying that a slide from the demand for the magnitude shown “is a recession warning signal”. Meanwhile, Mark Zandi, chief economist of Moody’s Analytics, warned in early August that the United States was on the precipice of a recession, citing roughly the same hard data as UBS. More recently, Zandi has set the chances of a recession at 50-50, and he said that the states representing almost a third of GDP were already in recession, in danger. Slok’s analysis poses the question: what happens if and when it slams in a mountain of inflation?

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