WEBVTT - Steven Blitz on U.S. CPI data (Radio)

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<v Speaker 1>Okay, joining US hours Stephen Blitz, his chief US economist

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<v Speaker 1>at TS Lombard, having a look at that inflation data

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<v Speaker 1>in a bit more details. Stephen, welcome to the program.

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<v Speaker 1>Having a look at that CPI print. And when you

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<v Speaker 1>look at it in a more granular way and take

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<v Speaker 1>a deep dive, what the points that you made which

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<v Speaker 1>we are encouraging, the ones which perhaps didn't really cause much.

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<v Speaker 1>I guess I didn't send your mind. In other words, yeah,

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<v Speaker 1>I mean I think I think that what you see

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<v Speaker 1>in the in the details, UH, is that what I

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<v Speaker 1>call the cp I V every day that inflation has

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<v Speaker 1>actually been coming off UM. And so that's a that's

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<v Speaker 1>a good sign, but actually it's a double edged sword

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<v Speaker 1>because that means, especially with weakening at gasoline prices UM.

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<v Speaker 1>Usually you know, you get that going into an economy

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<v Speaker 1>where the labor market is slowing, unemployments rising, wage growth

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<v Speaker 1>is started to come off, you have the opposite which

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<v Speaker 1>has never really happened before. And so you're actually all

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<v Speaker 1>this real wage real income laws. UH. In the first

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<v Speaker 1>part of this year, UH may start to reverse a

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<v Speaker 1>little bit and give consumers a little bit of h

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<v Speaker 1>of a lift. We'll see tomorrow retail sales. But we

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<v Speaker 1>do know that not a lot, but we are seeing

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<v Speaker 1>the inching up of confidence over the last few months

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<v Speaker 1>in terms of UH consumers as well as small business.

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<v Speaker 1>You know, listening to a lot of commentators, many of

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<v Speaker 1>them cite that when you see spikes and inflation going

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<v Speaker 1>back over the past fifty to seventy years, you usually

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<v Speaker 1>see them go straight up and then come straight back down. Um,

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<v Speaker 1>but this kind of feels like, since a lot of

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<v Speaker 1>it's baked into two wages and to um owners equivalent rents,

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<v Speaker 1>that that maybe it's going to stay up there for

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<v Speaker 1>a while. I mean, what's your sense of how long

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<v Speaker 1>this inflation will persist? It's going to right, And so

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<v Speaker 1>I'm laughing when you said that about this spike, because

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<v Speaker 1>I I can remember the seventies I was, and you

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<v Speaker 1>know that was up until VOLCA. Every time they said tightened,

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<v Speaker 1>the market's got very optimistic inflation would come down, because

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<v Speaker 1>that was always the lesson of US inflation. You had spikes,

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<v Speaker 1>and then it would would it would come back. The

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<v Speaker 1>difference is here you have spike also for all the

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<v Speaker 1>reasons that you know, everybody's talked about, you know, forever well,

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<v Speaker 1>maybe not forever, but for the last year or so.

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<v Speaker 1>And but what's happened now is that it's given way

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<v Speaker 1>way to a strong wage cycle and that's not going

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<v Speaker 1>away anytime soon. Uh. And you've got a permanent shift

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<v Speaker 1>in terms of reduction and supply of labor in the US.

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<v Speaker 1>You have three and a half percent unemployment. As a result,

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<v Speaker 1>you've got seven percent nominal wage growth and uh, coming

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<v Speaker 1>into next year, you're gonna get almost a nine percent

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<v Speaker 1>increase in the social earty payments, which impacts about seventy

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<v Speaker 1>billion people. Uh. And so you know, and and even

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<v Speaker 1>if inflation starts to lag, here is a long as

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<v Speaker 1>the employment market stays tight, next year, people are gonna

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<v Speaker 1>be looking for another round of high wage nominal wage growth.

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<v Speaker 1>Maybe it's not seven, maybe it's five or six instead,

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<v Speaker 1>but it's still gonna be high. And that's how these

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<v Speaker 1>inflationary cycles begin to take hold. They have a long life,

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<v Speaker 1>as you alluded to, and the said things four and

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<v Speaker 1>a half is going to be enough, and I'm telling

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<v Speaker 1>you it's not. But tell me something here, Steven. I mean,

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<v Speaker 1>surely you know we're going to be in trough full

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<v Speaker 1>or five months seeing a big drop off arguably given

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<v Speaker 1>that we have base effects. Yeah, but you're talking about

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<v Speaker 1>year over year stuff, and the set really looks at

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<v Speaker 1>month over month, and it looks at month over month

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<v Speaker 1>on a three month moving average basis. And when I

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<v Speaker 1>look at um inflation in UH T, P i X, food, energy,

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<v Speaker 1>and rent, right, it's running on a three month basis,

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<v Speaker 1>it's running it around six and that's not going to

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<v Speaker 1>come off so quickly. And the issue has always been

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<v Speaker 1>not that inflation is going to come off. We know,

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<v Speaker 1>we knew from the get go was going to come off.

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<v Speaker 1>The issue was always to where the FED was always assuming,

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<v Speaker 1>given the global situation that and that was the transition argument,

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<v Speaker 1>that it would drop down very quickly, back down to

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<v Speaker 1>to three percent range, or at least three percent, and

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<v Speaker 1>that's proven wrong. Uh And that's where the wage cycle

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<v Speaker 1>taking hold is going to keep inflation high, especially in

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<v Speaker 1>the service sector. Stephen, Why is the US economy holding

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<v Speaker 1>up and why are jobs holding up given the three

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<v Speaker 1>plus basis points and hikes that we've seen. Well, you know,

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<v Speaker 1>that's a great that's that's really the great question, because

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<v Speaker 1>you know, my profession is they're all falling over each other.

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<v Speaker 1>Trying to find the reason, see what's gonna break and

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<v Speaker 1>what's gonna blow up. The real question is what you

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<v Speaker 1>just asked, how is it that it's still very resilient,

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<v Speaker 1>And the fact is that you are seeing some slowing

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<v Speaker 1>you slowing in real estate, you slowing in private equity,

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<v Speaker 1>you know, related fintech and things like that. So it's

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<v Speaker 1>sound as if, yeah, the world isn't slowing down, but

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<v Speaker 1>it's maybe maybe. Like Jamie Diamond said, the first three

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<v Speaker 1>percent is one thing, but the next three percent is

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<v Speaker 1>a whole different story. Stephen Bliss has been with us

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<v Speaker 1>from TS Lombard