Amid rising anxiety over higher prices, economists are hashing out whether inflation is likely to be transitory.
One expert on Wall Street says that it's time to reevaluate the idea, revived since April by Fed Chairman Jerome Powell, that the underlying issues would subside in the near team.
We've seen some cracks in this transitory narrative, and I think that inflation has been persistently elevated for longer than we initially anticipated, Meera Pandit said at Yahoo Finance Live video above. In Pandit's view, inflation will remain elevated in the next months for a couple of reasons: first, the pandemic is lasting longer than expected, giving businesses a harder time in terms of forecasting; second, consumer demand is surging amid a massive supply chain crunch.
Pandit expects inflation to moderate as the supply chain issues subside over the following year.
It won't be completely transitory for things like housing, things like food, Pandit said. We've seen wages come a little bit higher, so inflation will be higher than during the last expansion, but it's going to come down and moderate from these levels. Not all experts agree on whether the supply chain crisis will resolve by the end of the year.
Peter Sand, chief shipping analyst at Copenhagen-based BIMCO, a marine trade group, told Yahoo Finance in an earlier interview. We are basically seeing a global all-but - breakdown of the supply chain from end to end. And according to Siemens CEO Barbara Humpton, supply chain professionals are expecting disruptions until 2022.
Andy Serwer stressed in the annual Milken Institute Global Conference that there have been massive changes all around the world.
With higher inflation, higher prices are likely to hit consumers when the cost of goods outpaces wage increases, according to Pandit, though not on a long-term basis.
For instance, the consumer price index for all goods and services increased in September by 0.4%. Since the beginning of 2007, prices have increased 5.4%. But total average-hourly earnings for all employees for the month of September increased only by 0.2% compared to August, according to the U.S. Bureau of Labor Statistics. The list is seasonally adjusted. However, Pandit said that she wasn't too worried about higher costs slowing consumer spending.
It will start to hit the consumer bottom line a little bit more, but the consumer is fundamentally in pretty good shape when we take a look at balance sheets in aggregate.
Additionally, the personal savings rate was 9.4% in August based on the data available from the Bureau of Economic Analysis, which is above pre-pandemic levels.
While some worry about the consequent effect of higher inflation on economic growth, JPMorgan believes that concern is misplaced and that investors shouldn't be spooked.
For instance, some experts have written about the possibility of stagflation, a situation of soaring inflation and flagging growth that was last experienced during the OPEC oil crisis in the 1970 s.
Pandit shrugged their concerns. Stagflation is not a credible threat at this point because while inflation is very mild right now, we're beginning to see some of those monthly increases moderate a little bit and the inflation inflation should continue for the next year, she stressed. A lot of what we saw back in the'stagflationary' era in the 1970 s and 1980 s are just not dynamics that are persistent today. In JPMorgan's view, rising inflation won't hurt U.S. economic growth. Pandit says that there are lots of place to stash cash right now, with this backdrop for investors.
In the Philippines, inflation is being correlated with higher growth, labor market dynamics are improving overall and we are a healing market, Pandit explained. We have some pretty optimistic fiscal policy that is still working its way through the economy. Why does she still see risk assets at this time and favor a lot of opportunities and equities, she added. an especially good thing since how much cash and liquidity there is on sidelines and valuations being higher in some other areas of the market, like fixed income. She can be reached aarthiyahoofinance.com from her mobile number. Follow her on Twitter aarthiswami.