Have Americans forgotten the ghosts of inflation of the past?
US inflation peaked at 14.7% in March and April 1980, with the economy experiencing “stagflation,” a nightmarish scenario characterized by weak growth and rising prices. So is inflation here to stay?
Inflation is not something we are used to worrying about.
In fact, the only Americans with real memories of soaring inflation and its effect on household finances are probably those over the age of 60.
Remember (or don’t): Inflation in the United States peaked at 14.7% in March and April 1980, with an economy in “stagflation”, a nightmarish scenario characterized by weak growth and rising prices. price.
The Federal Reserve finally brought inflation under control when former President Paul Volcker restricted the money supply and pushed up interest rates. Conventional 30-year mortgage rates peaked at 18.45%, but prices moderated and those dependent on fixed incomes breathed a sigh of relief.
The Fed’s job has not been easy. Keeping the price hikes under control was “a lot more difficult than I would have imagined,” Volcker told the Wall Street Journal.
“It took longer,” he said. “I was a little taken aback. The first actions that were taken, no one stood up and greeted. They all said, “This is more Federal Reserve bullshit.” “
What is happening? Many investors are too young to remember the bad old days of soaring inflation, or even weren’t even born (like the teens targeted by Fidelity – read on for more.) But that hasn’t stopped them. inflation fears to dominate the market. feeling in recent months.
Investors around the world fear central banks will respond to rising prices by raising interest rates and withdrawing stimulus sooner than expected. The big question is whether inflation will prove to be fleeting.
The latest: Consumer price inflation has doubled in the UK, from 0.7% in March to 1.5% in April, according to data released Wednesday. The annual inflation rate in the European Union was 2% in April, down from 1.7% in March. The rate was only 0.7% a year ago, as the pandemic began to spread across the continent.
The rise in inflation in Europe comes after consumer prices in the United States rose 4.2% in April from a year earlier, the largest increase since the peak of the global financial crisis in September 2008.
Meanwhile: The cost of everything needed for China’s post-pandemic infrastructure boom, from steel and coal to glass and cement, is soaring.
The price of rebar, a type of steel used to reinforce concrete, recently hit $ 965 per metric tonne in Shanghai, up 40% this year, and a new record high. Iron ore, which is used to make steel, topped $ 194 per metric tonne on the Dalian Futures Exchange, a 25% increase since the start of the year.
That is true. Back to the big question: is inflation here to stay? The truth is, no one really knows.
“Either the rise in US inflation is temporary or the Fed is dangerously complacent. Either way, we will see tolerance for higher inflation tested in the coming months, ”Societe Generale analyst Kit Juckes said.
Paul Krugman, the Nobel Prize-winning economist who writes for the New York Times, argues that US inflation figures are inflated by temporary factors, including supply bottlenecks caused by the pandemic.
He wrote last week that policymakers should “keep their cool”.
“It doesn’t look like the stagflation redux of the 1970s at all; it looks like a temporary failure, reflecting transient disruptions as the economy struggles to recover from pandemic disruptions, ”he wrote.
But not everyone agrees. In the UK, a similar debate is taking place among economists.
Ruth Gregory, senior economist at Capital Economics, said on Wednesday that energy prices were the main driver of inflation in April and price hikes would not trouble the Bank of England until the end of 2023.
But Berenberg Bank’s Kallum Pickering said the data is a reminder that “inflation is not dead,” suggesting investors should remain vigilant.
“While the monthly surge is not the start of a sudden surge in excessive inflation, the market should nonetheless pay attention to the continued rise. We do not believe that a rise in inflation will be totally transient as many markets claim and as global central bankers seem to assume, ”he said.
Is the windfall in online sales slowing?
It has been a successful year for e-commerce. But there are signs that the frenzy triggered by the pandemic may abate.
Walmart said on Tuesday that its online sales grew 37% in the first three months of the year. Sales have more than doubled in the past two years, he added. But growth slowed to 69% in the fourth quarter.
It’s a similar story at Home Depot, where digital sales rose 27% in the first quarter, the company reported on Tuesday. This compares to an impressive 83% digital growth for the fourth quarter of 2020.
The data is the latest indication that some consumers are changing their shopping habits as the pandemic wears off. For businesses that sell both online and in-store, the trick is to figure out how long the behavior of the coronavirus will stay.
Investors will receive more retail data on Wednesday. JD.com, Lowe’s, Target and TJX publish their results before the US markets open.
So your teenager wants to be the next Warren Buffett?
Warren Buffett, the world’s most famous investor, is 90 years old. But there are a lot of people, a lot, a lot younger, who are interested in stocks. Loyalty is attacking this market.
The brokerage giant announced Tuesday that it is implementing a new Fidelity Youth Account plan for 13-17 year olds. Moms and dads will have full access to monitor their children’s spending and investments.
Fidelity told my colleague Paul R. La Monica that both parents and children must sign agreements with clients, but “ultimately the parent is responsible for the activity in the account.” Teen investors will have some autonomy, however, as parental approval is not required to complete transactions.
In case you were wondering: Teens accounts don’t include any access or link to their parents’ accounts. So moms and dads won’t have to worry about young people reserving their retirement portfolios with dishonest stock picks.
JD.com, Lowe’s, Target and TJX publish their results before the US markets open. Cisco and L Brands report after close.
- EIA Crude Oil Inventories at 10:30 a.m. ET
- April Fed meeting minutes released at 2:00 p.m. ET
Coming tomorrow: Kohl’s benefits and applied materials.