The Over-Hyped Inflation Panic

by Greg Valliere, AGF Management Ltd.

THIS CITY IS GRIPPED by an inflation panic, fueled by pervasive media hysteria that even extends to the weather. It’s going to be cold !! There could be major rainstorms !! We never underestimate the media’s desire to boost ratings and sell newspapers.

INFLATION WILL BEGIN TO SUBSIDE BY SPRING: Oil prices already are falling, and clogged ports are beginning to loosen up. But the over-reaction may persist today as Joe Biden delivers a speech on inflation and may announce an opening of the Strategic Petroleum Reserve, a relatively meaningless gesture that might knock a few cents off the price of gasoline.

BIDEN APPARENTLY WILL INTENSIFY his populist bashing of big business for its alleged collusion and price-gouging, but the collusion seems more apparent by dockworkers in Long Beach, California.

AFTER YEARS OF TRANQUIL PRICES — despite weekly fear-mongering by the Wall Street Journal editorial page — the Cassandras finally got some inflation, just as a broken clock is correct twice a day. The irony with this panic is that the economy is indisputably strong.

MOST PRIVATE FORECASTERS expect about 5% GDP growth this quarter; the Atlanta Fed GDP forecast, admittedly on the high side, is for an 8.2% rise. And growth in the first half of 2022 — lubricated by two years of monetary and fiscal stimulus — should be solid.

REPUBLICANS ARE LOOKING FOR AN ISSUE — any issue — to divert attention away from the Donald Trump train wreck, so they have gained traction with an argument that the economy is terrible. It’s not. The unemployment rate continues to plunge and could be close to 4% by the end of winter, a tremendous boost for real disposable income.

IN THE TWO MOST REPUBLICAN STATES IN THE UNION — Nebraska and Utah — the jobless rates are 1.9% and 2.2%, respectively.

YET INFLATION HAS SPOOKED Washington and the media, even though we’re tempted to offer this bit of heresy: there’s some upside to inflation. People have gotten raises — a 5.9% hike in Social Security benefits, generous new labor contracts, etc. — and virtually everyone who owns a house has enjoyed significant appreciation.

PRESIDENT BIDEN NEEDS BETTER MESSANGING: Like most Democrats, he’s afraid to boast that the stock market seems to finish at record highs every few days. The markets anticipate a future of decent economic growth, full employment, solid earnings, remarkably low interest rates and inflation that will level off.

AND LEST WE FORGET, these solid fundamentals should persist despite the worst global pandemic in 100 years. There was no template for dealing with it; policymakers were in totally uncharted waters.

SO AS THE MEDIA RANTS about inflation, huge storms, and clogged airports, we suggest that everyone needs to take it down a notch. The economy is solid, a remarkable Thanksgiving gift considering where we were just one year ago.




The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

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©2021 AGF Management Limited. All rights reserved.

This post was first published at the AGF Perspectives Blog.

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