What rhymes with shmishflation?

Okay, we’re light on the jokes this week.

Welcome to Strategy Snacks. For us, the only thing more fun than complaining about our capitalist overlords is writing about them and sometimes defending their moves.

Notes:

Today we’re going to cover…inflation. wow.

Read the bolded stuff and you’ll be okay.

BUT FIRST, A POLL!

This week in Explainers: Inflation in 3 points

Mainly, why are we still dealing with it.

1. Over the course of the year, central banks have tried to turn down the dial on inflation. It hasn’t happened just yet.
   

2. This is in large part because of 3 things:

• The time it takes for Fed policy to kick in

• Pandemic Weirdness

• Falling Energy Prices

3. There’s a whole host of factors to consider. But given that no one ever really knows what’s happening, we’re trying to cover ones that make sense and seem like pervasive economic indicators.

A condescending inflation breakdown:

Fed Policy and the time it takes to kick in:

When the fed raises interest rates, it doesn’t happen automatically. There’s a shit ton of economic filtering that happens when it gets to customers. If Daddy Business (aka Jerome Powell) hikes up rates, those rates will eventually hit new mortgages and new business lines of credit, which take weeks/months to process.

This means that it’ll take some time for the total supply for money to go down.

Pandemic Weirdness in 2020-2021

This is an economic recipe you’ll love. Here are the ingredients:

• 1 Pandemic

• A shit storm of gov’t stimulus

• Rock bottom interest rates

Mix these together, and you’ve got a situation where households continue to spend like crazy, which contributes to business profits, which businesses then use to hire people, which leads to….a tight labor market! WHICH LEADS TO WAGE INCREASES!

Goods shortages are still a factor bumping up against inflation. You’ve got higher prices on cars, homes, and a lot of durable goods that people need. The pandemic stretched these supply chains and drove prices up. We’re still seeing the effects of those increases. Probably another reason we haven’t seen the effects of interest rate bumps just yet.

Falling Energy Prices

Oil prices are down. Natural gas prices are down. Ahmed would love to flex his international relations degree and give you his conspiracy theory, but we’ll save that for now.

When energy prices go DOWN. Consumer confidence (spending) goes UP.

It also gives government budgets a break by lowering the cost of large-scale energy purchase and the amount of money they have to provide in subsidies, etc.

None of this is investment advice. And we’ll re-iterate that no one ever knows what’s going on. Not us. Not anyone.

But we always say - we’ll be as thoughtful as we can with the situation in front of us.

Tweet of the Week (So Far)

How are you not following Saeed already?

Have a great week!

Ahmed and Peter