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If Inflation Was Transitory, This Would Not Be Happening

14422021-07-23 00:00:00 

Two weeks ago, Deutsche Bank's credit strategist Jim Reid pointed out something troubling for the hapless "inflation is transitory" crowd, which includes most central bankers and their sycophantic media muppets as well as virtually all Wall Street economists: while 2021 inflation projections are off the charts, why are 2022 inflation consensus estimates rising as rapidly as they are... or as Reid put it "with inflation forecasts creeping ever higher, at what point will the surge in 2022 inflation render the "transitory" debate moot?" Reid is right, especially since if inflation is truly transitory the higher base effects of 2021 would mean that 2022 FY inflation growth should actually be lower and well below the Fed's 2% target.

Only, as Bank of America's Chief Investment Strategist Michael Hartnett notes, that is not happening. Instead, as the following chart shows, consensus 2022 CPI has now risen to 2.5%, which while clearly below the 3.5% of 2021 will be - if Wall Street is correct - the highest full year inflation of any year in the past decade.

In other words, Wall Street can't have it both ways: it can't be saying that soaring inflation is transitory on one hand while on the other predicting the highest 2022 CPI since the global financial crisis.

But wait, it gets worse because while CPI forecasts are rising rapidly, upward revisions to 2022 GDP have stalled and are about to turn downward, suggesting that whether it wants to admit it or not, the US is facing a growing risk of stagflation...

Finally, in an interview on Bloomberg TV, this morning Mohamed El-Erian confirmed that all the unelected career academics making live more expensive by the day for billions of people are dead wrong:  “Inflation is not going to be transitory,” the chief economic adviser at Allianz SE said in an interview on Bloomberg TV’s The Open show. “I’ve been pretty certain in my mind about three prior calls. This is the fourth one.”

“I have a whole list of companies that have announced price increases, that have told us they expect further price increases, and that they expect them to stick,” El-Erian said.

He explains the current 10-year Treasury yield is below 1.3% because the Fed is injecting liquidity into the market with monthly purchases of $120 billion in securities.

“The Fed should ease its foot slowly off the accelerator,” he said, but the Fed won't at least until it's too late and yields explode higher.