Voices like Elizabeth Warren have been among the loudest when it comes to painting “corporate greed” as the prime suspect behind rising inflation in the US.This isn’t a fringe perspective. On Wednesday, Joe Biden sent a warning letter to top oil executives asking them to bring down prices, implying the administration might intervene if not.
Is this narrative true? Is Exxon responsible for rising gas prices? Is Tyson Foods responsible for rising egg and pork prices? Macro analyst Stephanie Pomboy doesn’t think so.
According to Pomboy, we need to look at the difference between the consumer price index (CPI) and the producer price index (PPI). The PPI does not make too many headlines as it’s not of immediate concern to everyday consumers. It tracks the prices of raw commodities and intermediate services like bulk shipping.
In short, PPI reflects prices that small businesses and corporations pay while CPI is analogous for the typical consumer. Taking a look at the difference between the two measures, there is quite a massive gap and not one that favors corporations:
So what does this mean? On net, businesses are bearing the brunt of this inflation. Perhaps many CEOs believed inflation was transitory and were initially reluctant to raise prices.
The implications of this, however, are deeper than the realization that Elizabeth Warren needs to retake Econ 101. It also means businesses, which are already facing soaring costs of capital due to the Federal Reserve’s tightening campaign, are in a worse position financially than most thought.
This could mean layoffs or worse: insolvency and liquidations.
Overall, Pomboy sees the private sector as extremely fragile, especially now that the labor market is no longer the Fed’s primary concern. She recalls the 2008 financial crisis, when market pundits were having a bit of an inflation scare as well. At the time, inflation peaked in July ‘08 at 5.6% YoY. Exactly one year later, inflation had morphed into deflation, coming in at -2.1%.
Pomboy warns that with an economy this fragile, we may be facing a brutal deflationary contraction just as inflation fears have reached peak hysteria. Listen to her full interview here
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This is a good projection as I have been forecasting for at least 10 years. This first phase of stagflation can’t last because as the financial system collapses to match and reconcile with the energy system a Great Depression 2 will be upon us. Inflation cannot prevail for long whilst the velocity of money continues to fall ever since the turning point in the late 1990s.
https://fred.stlouisfed.org/series/M2V
I would think fomenting formal recession would force defaults and thus be deflationary as debt is destroyed. OTOH, 1984 style war is going to cause severe supply issues.
Agreed Ken31, I think a global depression is baked in the cake. TPTB have no control over events now, we can only allow the collapse to take its course and manage the decline as best as we can.
How would you know debt is being destroyed faster than CB money printing, purported QT (that will be even officially reversed within a few months) notwithstanding?
As only then it would start to be the tiniest bit deflationary – but then the stock of existing debt and the (microscopic) rate one would be “destroying” it, needs to be taken into account too.
OK, I’m not watching 50 minutes of videos to distill a few key statements out of it –
but you Peter and the article both believe there will be large scale deflation measured in dollars,
and not just in house, stock, and bond prices coming back to slightly more reasonable levels (that would actually be disinflation),
but also in everyday goods such as staples, energy/utilities, rents, or even cars??
Yes ‘m’ this is what I am seeing in the data but I might be misinterpreting it. All I know is that EROEI is negative for growth until they sort out our reliance of FF.
https://www.zerohedge.com/economics/deflationary-tsunami-deck-tidal-wave-discounts-and-crashing-prices
FF: Rumors of my [EROEI-]Demise have been greatly exaggerated.
Deflation helps those with cash assets ie the poor. Of course the elites are against it
Excellent points from everyone here. Has there ever been an extended (2 yrs or more) inflationary cycle that ended softly? Price fixing? What a great idea. Anyone have those WIN buttons left from the 70’s? Whip Inflation Now. Slogans…maybe that’s what we need. Hard to beat Let’s Go Brandon, though. The major oil companies are sufficiently diversified (I’m talking products, not people!) that if the government says they can only sell gas and diesel at a loss, I’m pretty sure they’ll just layoff thousands of refinery workers and stop selling gasoline and Diesel. It’s what I’d do.
That should make the green people happy, at least until Great Depression 2, as Peter refers to it, hits its stride.
Deflation. If we don’t have it, just stopping inflation isn’t going to be enough. Too many of the Boomer generation are living off savings and IRAs/401(k)s, and they’ve taken a 25% hit just this year in the market, plus 10% real inflation is making what’s left worth less.
My 2000 Subaru runs fine. My wife’s 2014 Ford Explorer is good, too. I still don’t really know why we have a third car, but it’s a 2002 Audi TT. The three of them combined have 450,000 miles. I guess we’re keeping them all so we will be sure to have at least one running car. HOWEVER, we were not going to buy a $50,000 Tesla, and we’re damned sure not going to buy it after the price just went up to $56,000! And all the stuff Tesla needs to make cars comes to them thanks to diesel locomotives or diesel trucks. Oops! So green people, I have two words for you, and I think you know what they are!
And btw greenies, when Big Oil stops selling diesel and gasoline, there won’t be any more ethanol, because it takes a gallon of fossil fuel to get a gallon of ethanol from corn. And with no gas and diesel, there won’t even be corn for corn flakes.
End of rant.