Chart Talk: May 22nd, 2024


After bottoming during the early stages of the pandemicduring the spring of 2020, expectations surrounding the pace of inflation overthe next 5-Years have risen steadily. The only exception being a brief respite during the early stages of Fedtightening when Americans had faith that inflation was truly transitory.  Since then, despite the best efforts of FedChairman Jerome Powell & Company to convince us otherwise, Americans arenot so sure.


A case in point can be seen in the rise of prices at theWholesale Level as measured by the Producer Price Index (PPI), which jumped0.5% during April to bring the y/y increase to 2.2%, above the Fed’s target of2.05.  The problem with rising inflationexpectations is that at some point those expectations become a reality, aself-fulfilling cycle.

In our opinion as long as the Labor Force ParticipationRate remains below its long-term average, the relationship dynamics will favorthe employee over the employer thereby keeping inflation at both the wholesaleas well as retail level between two and three percent. As YCharts notes “.Historically, there has been a negative trend from the 2000s of 67.10%participation to the 2010s 62.50% participation as the baby-boomer age grouphas begun shifting out of the working age population.”

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