Instead, Rosenberg essentially agrees with Fed Chairman Jerome Powell that the recent acceleration in inflation seen in April will be temporary.
What's going on isn't a fundamental "regime shift", but rather a "pendulum" swinging back to the opposite extreme following the sudden deflationary demand shock caused by the pandemic. We had three consecutive months of negative CPI prints last year, Rosenberg pointed out. To offset all that, April saw the biggest MoM jump in consumer prices since 1981.
Rosenberg argues that the factors that contributed to this surge in prices are already starting to fade....
He also addresses "stagflation" without naming it. Stagflation occurs when the labor market is still loose so that there is no wage pressure, but there are supply shortages, especially of commodities needed for production, that result in a general and continuous increase in the price level.
That condition could be in the cards if supply doesn't return to normal as the pandemic winds down, but he sees no evidence of that of any significant reason to expect it.
And ,of course, a caricature of MMT gets a lot of the blame in the current inflation hysteria based on "conventional wisdom" based on "commonsense". While not mentioning MMT, Rosenberg refutes the this.
The question remains as to whether the relief will be enough to fund a smooth recovery. So far so good fiscally, but a debt limit looms in the distance (projected around Oct 2021) and that is generally political.
Zero Hedge
Stagflation occurs when the labor market is still loose so that there is no wage pressure, but there are supply shortages, especially of commodities needed for production, that result in a general and continuous increase in the price level.
ReplyDeleteThis article illustrates the point:
Why Shortages of a $1 Chip Sparked Crisis in Global Economy
To understand why the $450 billion semiconductor industry has lurched into crisis, a helpful place to start is a one-dollar part called a display driver.
Hundreds of different kinds of chips make up the global silicon industry, with the flashiest ones from Qualcomm Inc. and Intel Corp. going for $100 apiece to more than $1,000. Those run powerful computers or the shiny smartphone in your pocket. A display driver chip is mundane by contrast: Its sole purpose is to convey basic instructions for illuminating the screen on your phone, monitor or navigation system.
The trouble for the chip industry -- and increasingly companies beyond tech, like automakers -- is that there aren’t enough display drivers to go around. Firms that make them can’t keep up with surging demand so prices are spiking. That’s contributing to short supplies and increasing costs for liquid crystal display panels, essential components for making televisions and laptops, as well as cars, airplanes and high-end refrigerators.
“It’s not like you can just make do. If you have everything else, but you don’t have a display driver, then you can’t build your product,” says Stacy Rasgon, who covers the semiconductor industry for Sanford C. Bernstein.
Rosenberg is a dummy. He's a monetarist, inflationista dummy.
ReplyDeleteRosenberg is a dummy. He's a monetarist, inflationista dummy.
ReplyDeleteYes, and that is why I put it up. It is surprising to see him taking the opposite side in this article — money supply no indicator and price rises after a deflationary period are not "inflationary." This is no indication he has shifted his position overall, just in relation to this special case.
@ Ahmed
ReplyDeleteThe chip shortage is a matter of scale. Technological innovation increases demand for supply of certain items and the market reacts to the ability of the global economy to scale production to meet demand.
However, even with the profit incentive, there is still drag owing to lack of knowledge workers and highly skilled workers in sufficient quantity for the level of scaling needed. It may take time to bring resources online.
The market is also sensitive to availability of materials, like rare earth that are in short supply. Generally, the increased prices provide incentive for investment to scale up production, but that can take time, e.g., find new sources, increase mining operations and the like.
The Chinese government is throwing in hundreds of billions to develop tech at scale — trillions over the projected time-frame, and the US government is stepping up to "compete." So R&D is getting funded as well as education and training in addition to competition in poaching talent. I also read sometime ago that the Chinese are offering double-salary to those willing to shift employment to the mainland and at least some Taiwanese chip engineers have responded.
In cases of supply shortage work to bring the needed resources online as quickly as possible within the limits of profitability. According to MMT, sovereign government don't have to be concerned with profitability in making investments in "infrastructure," which depends on the government's definition of what qualifies.
Inflation is always, everywhere, a lack of competition issue.
ReplyDeleteStagflation is the result of an unbreakable cartel, and which requires rationing to sort out. It's a failure of the price mechanism to bring on new supply.