Inflation and the Outlook
October 18, 2021
Inflation-related data early last week pointed to further pricing pressures with: 1) big increase in inflation expectations within the New York Fed survey; 2) upside September CPI print and; 3) the Social Security cost-of-living adjustment. The narrative improved on Thursday and Friday when: 1) PPI undershot expectations; 2) import prices came below consensus and; 3) the 1-year Michigan inflation expectation reading jumped, but the 5-10-year expectation (Fed cares more about) edged lower. Taking a step back, please also note that global core goods inflation in the 3 months ending in August decelerated to +3% annualized from a +10% pace in the 3 months ending in May. Inflation looks like it’s already peaked with further deceleration expected in the months ahead on base effects alone. Stagflation concerns also look misplaced as disappointing growth data through September likely reflects increased manufacturing supply constraints from the summer’s delta wave. We understand that higher energy prices rekindle thoughts of 1970’s like stagflation that followed sharply higher oil prices in the wake of the 1972 Arab Oil Embargo. Adjusted for inflation, oil prices pre-embargo were sitting at a 2021 equivalent of $160bbl before rising to $286bbl at its peak.