LIZ ANN SONDERS: Hi, everybody. Welcome to the November Market Snapshot. In this video, I will share our latest thoughts on inflation, which is, let’s just say, clearly less transitory than what the Fed expected when it first added that word into its lexicon. In fact, during the latest post-FOMC Meeting press conference, Fed chair Jerome Powell used the word ‘persistent,’ clearly the opposite of transitory, 11 times. Now, even if as the FOMC statement noted, the factors behind inflation’s rise are, ultimately, transitory, price pressures and their causes and effects are broadening, including the labor market’s impact on inflation, which I’ll discuss as well.
So let’s start with a quick, long-term look at the most common inflation metric, which is the Consumer Price Index. And the chart here shows the headline reading, which includes food and energy prices. As you can see although inflation has jumped, it does still pale in comparison to the inflation of the 1970s era. And as many remember, certainly me, I’m old enough, that was a toxic combination of weak growth and incessantly rising inflation, but, also, really weak productivity and a high and deteriorating unemployment rate. And it’s the absence of that labor market weakness, the high and deteriorating unemployment rate, that perhaps surrenders the label of stagflation not yet applicable.
Now, a specific metric or index borne out of that ‘70s stagflation era was the so-called Misery Index. Again, those of us more mature will probably remember that. That’s simply the addition of the inflation and unemployment rates. And as you can see, although it is the openly elevated relative to where it’s been recently, it’s well lower than it was during the 1970s.
I think there’s maybe a better explanation for what’s happening today. I believe we have transitioned from what’s called procyclical inflation when high demand pushes up prices to countercyclical inflation when high prices push down economic activity.
Now, the pandemic has been characterized, as we know, by massive shifts in consumption patterns that has resulted in huge relative demand shifts. And that’s been alongside the well-known acute supply bottlenecks, including, more recently, these labor shortages. So let’s look at today’s unique labor market conditions and tie them into the inflation outlook from here.
So this chart looks at the combination of job openings and what’s called the quits rate. That measures the percentage of the workforce voluntarily quitting their jobs. So not only are job openings well higher than the number of people currently unemployed, the quits rate has gone parabolic. That near 3% reading means that nearly 3% of the entire US workforce quit their jobs in the latest month for which the data is available. This phenomenon even has a catchy new title. They’re calling it the Great Resignation.