Low-income households bear the brunt of the rise in fuel prices, leading to higher wage demands and consumer swaps.
Inflation continues to surprise upwards. This dynamic is perhaps not a surprise when we see the rise in energy prices, and anyone can easily make the connection between inflation, rising oil and gas prices, and geopolitical tensions. This may tend to re-feed the narrative with a temporary inflation caused by the energy causing it to decline rapidly. Given the latest US inflation figures, this idea seems risky to us in several ways.
On the one hand, because these figures show that the rise in prices has spread to the vast majority of components. On the other hand, we may suspect the wage response mechanism to inflation, which will bring us closer to a persistent phenomenon, at least more durable than expected. With a more moderate rise in wages in Europe, we are still a long way from it, but low unemployment in the old continent could lead to a boost in the coming quarters. It is therefore a matter of being mindful of the dynamic nature of this process and observing the chain reactions at work.
This inflationary phenomenon can have an impact on growth. Indeed, the reality of the purchasing power of the middle classes calls into question the COVID-19 surplus savings thesis. Low-income households bear the brunt of the rise in fuel prices, leading to higher wage demands and consumer swaps. This is what is missing today in a relatively consensus-based and optimistic scenario for global growth, which at this stage will not be affected by inflation and interest rate hikes.
Fourth-quarter results are in the skies, but the 2022 trend is watchful for business leaders.
This is undoubtedly an element of concern that enters the equation for central banks, which will not be able to realize all the rate hikes the market expects today. The Fed and the European Central Bank (ECB) have many different areas that are as relevant to the specificity of their missions as to differences in economic context. But they have the fact that if growth shows signs of weakness, they probably want to avoid causing a recession or a drastic market reversal by way of an excessively large normalization. However, monetary policy is far from neutral for markets, but a paradox persists.
While it is accepted that the action of central banks has enabled a strong recovery in the prices of financial assets from the spring of 2020, it is less widely accepted that monetary normalization has led to an adjustment in the stock markets and bond spread jobs. This has been the case since January.
Some signs of weakness from inflationary pressures are also starting to appear in companies. So far, they’ve broken records of sustained growth and profitability, responding to cost increases with price increases to support their profit margins.
Fourth-quarter results are in the skies, but industrial stocks are seeing margin levels drop as the 2022 trend is cautious from business leaders. This start of the year therefore encourages trends to show humility and pragmatism in the face of a changing reality that seems less entrenched and in a regime of higher risk.
Many issues focused on March will respond to the strategy adopted by central banks. If the economy stalls, the Fed will initiate the announced rate hike. Conversely, if the international environment, market volatility or economic trend deteriorates, this will be an opportunity to check whether the “Greenspan put” still exists…
Source From: Google News