Controlled Inflation, Company Costs, and Omicron Collapse

13 de jan. de 2022

Looking at yesterday's data on consumer inflation in the United States, one involuntarily wonders what the Fed was counting on when they repeated the mantra about the temporality of inflation for six months and assured that it would resolve itself. It resolved to the highest growth rates since 1982 and an annual growth rate of 7%, which is unheard of for developed countries.

Tellingly, everything points in favor of a further rise in prices: the energy crisis has received a second wind thanks to the winter and a cold snap, and the inability of automakers to meet demand due to a shortage of chips leads to an increase in prices for used cars.

In light of such data, 2022 is simply bound to become the year of a comprehensive tightening of monetary policy, however, Powell officially confirmed all this on Tuesday, speaking in Congress. Recall that the Fed's target is 2%. Markets estimate the chances of a first rate hike as early as May at 79%.

However, yesterday the markets once again decided to ignore reality and pretended not to notice either inflation or the consequences that it entails.

But the consequences are not only a tightening of monetary policy, but also an increase in companies' costs. And endlessly transferring them to consumers will not work. Sooner or later, you will have to sacrifice margin and profit. Banks are already reporting tomorrow and the reporting season is entering an active phase. It will be very interesting to see how corporations deal with inflation this time around. If they decide to give up some of the profits so as not to lose customers, then the disappointment of buyers of shares can be transformed into a sale.

The number of covid diseases in the world has jumped over 3 million (!) new cases per day. As a result, the FDA said extremely ominously in Congress that an unprecedented wave of omicronic infections across the country could provoke the inoperability of police, health care and transportation services. What can we say about non-emergency services - all kinds of production, services and other elements of the economic system. By the way, we wrote about this earlier - if everyone is sick at the same time, then there will simply be no one to work. And now everyone is getting sick en masse.