Running hot

Inflation is slowly but surely coming back, not only in the U.S., but globally. Take a look at the table below. Even though price stability is a mandate for central banks, only 8 out of the top 30 have inflation rates that are below their targets. And in most cases, the CPI is so massaged that the real inflation is way higher than what the CPI reflects. As a consequence, the global economy is going to run hot for a while. In the case of the U.S., the new Fed chairman believes AI is so powerfully deflationary that it will compensate the current inflation and more. While we don’t disagree in principle, the actual counter effects may not be linear and may not happen when needed. In other words, we might overshoot inflation before we see the benefits of AI. Additionally, they may not be symmetrical for everyone. It may be deflationary for companies but not for employees, and so on. Fed funds futures, estimate almost no chance of hiking for the June meeting. But do expect a hike by the end of the year. Due to high levels of debt, governments favor high inflation because it dwarfs the debt. It’s a strategic, deliberated plan, not a misreading.

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