Speaker 1: Okay, joining US hours Stephen Blitz, his chief US economist
Speaker 1: at TS Lombard, having a look at that inflation data
Speaker 1: in a bit more details. Stephen, welcome to the program.
Speaker 1: Having a look at that CPI print. And when you
Speaker 1: look at it in a more granular way and take
Speaker 1: a deep dive, what the points that you made which
Speaker 1: we are encouraging, the ones which perhaps didn't really cause much.
Speaker 1: I guess I didn't send your mind. In other words, yeah,
Speaker 1: I mean I think I think that what you see
Speaker 1: in the in the details, UH, is that what I
Speaker 1: call the cp I V every day that inflation has
Speaker 1: actually been coming off UM. And so that's a that's
Speaker 1: a good sign, but actually it's a double edged sword
Speaker 1: because that means, especially with weakening at gasoline prices UM.
Speaker 1: Usually you know, you get that going into an economy
Speaker 1: where the labor market is slowing, unemployments rising, wage growth
Speaker 1: is started to come off, you have the opposite which
Speaker 1: has never really happened before. And so you're actually all
Speaker 1: this real wage real income laws. UH. In the first
Speaker 1: part of this year, UH may start to reverse a
Speaker 1: little bit and give consumers a little bit of h
Speaker 1: of a lift. We'll see tomorrow retail sales. But we
Speaker 1: do know that not a lot, but we are seeing
Speaker 1: the inching up of confidence over the last few months
Speaker 1: in terms of UH consumers as well as small business.
Speaker 1: You know, listening to a lot of commentators, many of
Speaker 1: them cite that when you see spikes and inflation going
Speaker 1: back over the past fifty to seventy years, you usually
Speaker 1: see them go straight up and then come straight back down. Um,
Speaker 1: but this kind of feels like, since a lot of
Speaker 1: it's baked into two wages and to um owners equivalent rents,
Speaker 1: that that maybe it's going to stay up there for
Speaker 1: a while. I mean, what's your sense of how long
Speaker 1: this inflation will persist? It's going to right, And so
Speaker 1: I'm laughing when you said that about this spike, because
Speaker 1: I I can remember the seventies I was, and you
Speaker 1: know that was up until VOLCA. Every time they said tightened,
Speaker 1: the market's got very optimistic inflation would come down, because
Speaker 1: that was always the lesson of US inflation. You had spikes,
Speaker 1: and then it would would it would come back. The
Speaker 1: difference is here you have spike also for all the
Speaker 1: reasons that you know, everybody's talked about, you know, forever well,
Speaker 1: maybe not forever, but for the last year or so.
Speaker 1: And but what's happened now is that it's given way
Speaker 1: way to a strong wage cycle and that's not going
Speaker 1: away anytime soon. Uh. And you've got a permanent shift
Speaker 1: in terms of reduction and supply of labor in the US.
Speaker 1: You have three and a half percent unemployment. As a result,
Speaker 1: you've got seven percent nominal wage growth and uh, coming
Speaker 1: into next year, you're gonna get almost a nine percent
Speaker 1: increase in the social earty payments, which impacts about seventy
Speaker 1: billion people. Uh. And so you know, and and even
Speaker 1: if inflation starts to lag, here is a long as
Speaker 1: the employment market stays tight, next year, people are gonna
Speaker 1: be looking for another round of high wage nominal wage growth.
Speaker 1: Maybe it's not seven, maybe it's five or six instead,
Speaker 1: but it's still gonna be high. And that's how these
Speaker 1: inflationary cycles begin to take hold. They have a long life,
Speaker 1: as you alluded to, and the said things four and
Speaker 1: a half is going to be enough, and I'm telling
Speaker 1: you it's not. But tell me something here, Steven. I mean,
Speaker 1: surely you know we're going to be in trough full
Speaker 1: or five months seeing a big drop off arguably given
Speaker 1: that we have base effects. Yeah, but you're talking about
Speaker 1: year over year stuff, and the set really looks at
Speaker 1: month over month, and it looks at month over month
Speaker 1: on a three month moving average basis. And when I
Speaker 1: look at um inflation in UH T, P i X, food, energy,
Speaker 1: and rent, right, it's running on a three month basis,
Speaker 1: it's running it around six and that's not going to
Speaker 1: come off so quickly. And the issue has always been
Speaker 1: not that inflation is going to come off. We know,
Speaker 1: we knew from the get go was going to come off.
Speaker 1: The issue was always to where the FED was always assuming,
Speaker 1: given the global situation that and that was the transition argument,
Speaker 1: that it would drop down very quickly, back down to
Speaker 1: to three percent range, or at least three percent, and
Speaker 1: that's proven wrong. Uh And that's where the wage cycle
Speaker 1: taking hold is going to keep inflation high, especially in
Speaker 1: the service sector. Stephen, Why is the US economy holding
Speaker 1: up and why are jobs holding up given the three
Speaker 1: plus basis points and hikes that we've seen. Well, you know,
Speaker 1: that's a great that's that's really the great question, because
Speaker 1: you know, my profession is they're all falling over each other.
Speaker 1: Trying to find the reason, see what's gonna break and
Speaker 1: what's gonna blow up. The real question is what you
Speaker 1: just asked, how is it that it's still very resilient,
Speaker 1: And the fact is that you are seeing some slowing
Speaker 1: you slowing in real estate, you slowing in private equity,
Speaker 1: you know, related fintech and things like that. So it's
Speaker 1: sound as if, yeah, the world isn't slowing down, but
Speaker 1: it's maybe maybe. Like Jamie Diamond said, the first three
Speaker 1: percent is one thing, but the next three percent is
Speaker 1: a whole different story. Stephen Bliss has been with us
Speaker 1: from TS Lombard