Pricing power is back!
Inflation remains top of mind for investors but has filtered through to Main Street. This chart from Macrobond Financial shows that more companies are planning to raise prices than at any time in the last twenty years. This is due to rising input costs, especially in raw materials, but is also an indication of companies’ confidence in their sales outlook and therefore the economic situation in general.
Similarly for wages: the number of companies planning to give employees increases is at decades-high levels (although not as high as the number raising prices). This tug-of-war between consumer income and product prices is a key driver for the outlook for inflation and economic growth: certainly it indicates further inflation in the short-term both from the supply and demand side, but if earnings do not keep pace with prices then this will eventually act as a dampener on either growth or inflation. The Fed needs to tread a fine line to manage this. What can be said at this stage is that the chart provides some evidence against a so-called wage-price spiral in which higher prices push employees to demand higher wages which in turn pushes up prices which in turn…
Inflation is always and everywhere a monetary phenomenon. Although we at Kieger are by no means committed monetarists, this chart lends more credence to the idea that inflation will be moving lower in the next months.
The huge withdrawal of central bank liquidity happening currently is truly “unprecedented” (an otherwise-overused term currently). Despite all of the detailed analysis on the effects of quantitative tightening no one can predict the full impact this will have, but it is certainly not Fed Chair Yellen’s 2017 expectation of “watching paint dry”.
Inflation continues to drive recession worries. US inflation continues to drive recession worries with CPI running at 8.6% YoY in May.