Inflation will hit zero by Christmas
by JDH on September 9, 2023
How’s that for a clickbait title?
Everyone is worried about inflation. They say that unemployment remains low, so employers must pay more to retain workers, so wages go up, and that’s inflationary.
That was the story in 2021 and 2022, but that’s not the story today.
With the reduction of direct fiscal stimulus (CERB and other payments directly to working-age Canadians and Americans) more workers are entering the workforce. The Labor Force Participation rate has increased. That will contain wage growth.
Interest rates are at the highest levels since 2008. That constrains spending. The real estate market is in a slow-motion crash (that will become a fast crash later this year and into 2024).
But wait, CPI is still higher than the Feds 2% target!
Yes, but there is a lag effect. If you signed your lease a year or two ago when rental supply was constrained, and rents were higher, you are paying a high base rate of rent. But those rent gains are diminishing, and as leases renew, and people move, the impact of higher rents diminishes.
And then there is A.I.. Artificial Intelligence improves productivity, and that is clearly deflationary.
So, don’t believe the inflationists. Inflation is going in the other direction.
Check back at Christmas, and we’ll see if I was right.
Inflation will hit zero by Christmas
by JDH on September 9, 2023
How’s that for a clickbait title?
Everyone is worried about inflation. They say that unemployment remains low, so employers must pay more to retain workers, so wages go up, and that’s inflationary.
That was the story in 2021 and 2022, but that’s not the story today.
With the reduction of direct fiscal stimulus (CERB and other payments directly to working-age Canadians and Americans) more workers are entering the workforce. The Labor Force Participation rate has increased. That will contain wage growth.
Interest rates are at the highest levels since 2008. That constrains spending. The real estate market is in a slow-motion crash (that will become a fast crash later this year and into 2024).
But wait, CPI is still higher than the Feds 2% target!
Yes, but there is a lag effect. If you signed your lease a year or two ago when rental supply was constrained, and rents were higher, you are paying a high base rate of rent. But those rent gains are diminishing, and as leases renew, and people move, the impact of higher rents diminishes.
And then there is A.I.. Artificial Intelligence improves productivity, and that is clearly deflationary.
So, don’t believe the inflationists. Inflation is going in the other direction.
Check back at Christmas, and we’ll see if I was right.