Austerity Jones calls C Thomas and asks his take on the US inflation rate announced today – 8.5% in July 2022
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Austerity: Hello everyone, this morning we wanted to go live because the inflation print is just out which is 8.5% in July. Here I am asking C Thomas what’s his take on this. C Thomas?
C Thomas: Good morning Austerity. I think 8.5% is a little less than what they were expecting but last I checked 8.5% still a big number. To say that Inflation is done with and we can move on with our lives, I don’t think that’s correct.
I think we get a very very big release on energy. Gas prices came down. That was the big chunk of that. Unfortunately, food prices and some of the other categories were still strong.
We need to be “a little” careful saying that inflation is done.
Let’s say you make a $1000 a year, for the sake of easy computation, and inflation rate is 8%. That’s the equivalent of making $920 a year, all things equal. And let’s say you have a very nice employer that gives you 3% adjustment, that’s $30. So you made $950 a year and lost 5% of your income.
At some point that’s going to catch up to customer. 5% less of their income, they will be like “hey I can’t afford Starbucks”. Average person makes $4-5k a month, so the loss they have due to inflation is $200. If you go to Starbucks everyday and pay $3-5 a piece, your Starbucks budget is almost what you loose to inflation. That $200 magically disappeared due to inflation. Everybody is new to inflation, especially in the US. Nobody is adjusted to it yet, it hasn’t really changed behaviors. But I think the longer this stays up here at 8.5%, 9.1%, 7.9%, all these levels, all of a sudden we are going to reconcile and do a little math and say “wow, wait a second, what is going on here?”
On some of the news this morning people were saying “We finally peaked and now we can move on”. I think this inflation is going to be sticky and it is going to be around for a while. I do not think it is transitory, Jerome Powell. I think not. We have covered this on our earlier posts. Transitory is here for a short time and gone. We have had this well into a year now.
Anything is about energy. We have seen demand destruction in the US because of the high prices etc and also benefited from the seasonality of energy prices. As we go into fall, and with the situation in Europe, there will pick up very soon. I don’t think energy is gonna go back where it was two years ago. We are not closing societies down. Even China is trying to re-open. That relief we got which was the vast majority of why we were lower today (relief owed to lower energy prices), that’s going to subside a bit.