Thinkpad: The Inflation Fog

The inflation debate caught fire this week.

As U.S. data showed that annual consumer price index had risen to 4.2% and core CPI to 3%, the question being asked was—is inflation back?

To that one question, there are many answers:

Who is right? We will likely only know in hindsight. But here are a few reads we found interesting:

The first of these links the recent weak jobs report from U.S. with the inflation story. A section of bond traders asked whether the sub-par April jobs report suggests companies will need to lift wages to entice people back into the labour force. If that is the case, some version of a wage price spiral may kick in, leading to inflation.

There are others who are asking similar questions. Greg Ip, writing for the Wall Street Journal, wrote that a section of U.S. workers, for instance those in the leisure and hospitality sector, are seeing higher wages because post-pandemic pricing in these industries has settled at higher levels. If this experience is repeated across more sectors, inflation may not prove to be as “transitory” as the Fed suggests.

For those wanting to view the debate from the equity lens, this article explains the divergent views on whether inflation is good or bad for stocks.

Before we bring the conversation back home, a note to an #alsoread which came from the Bank of Canada this week. Governor Tiff Macklem took the issue of central bank policies and inequality head on. “QE can widen wealth inequality,” Macklem said in this speech.

Back home, the train wreck that is India’s vaccination policy remains the focus. BloombergQuint has been parsing the vaccine supply data for weeks. As things stand, supplies are dwindling. If you’re wondering when your turn will come, read these pieces on how quickly vaccines will be available for the 18-44 and 45+ age groups. Caution: If you post one and not the other, you’ll give your age away!

Meanwhile, the longer it takes, the more damage we bring to the local economy.

A number of economists have now cut their forecasts to below double-digit GDP growth for FY22. S&P Global has forecast growth between 8.2-9.8%, contingent on whether the virus peaks in May or later. Moody’s Investors Service has cut its forecast to 9.3% from 13.7% earlier. And HSBC’s Pranjul Bhandari now pegs growth at 8% in FY22 versus 11.2% earlier.

Not the most cheerful note to end a weekend note on? We leave you with the weekly edition of the Elon Musk show. In this week’s episode: Musk Ghosts Bitcoin, Woos Dogecoin Again.

Stay safe.