john Lear,
Chief economist at morning console joins us now for some more insight on this
john what does this mean for consumers and the cost of goods
in the coming months given that you know the 9.7 is higher
than of course the C. P. I. Number that we got right around 7.5 do we expect than prices
to go up even higher you know in the months to come?
Thanks for having me.
I would expect in the near term prices to continue
to rise in large part because of all the,
you know,
the upward pressure that we're seeing in the energy
sector commodities and then labor prices as well I think
um you know that that broader point to make which
is that this from from the perspective the consumer,
this is really all about the trade off between
wage inflation and price inflation and thus far they've been able to sort of
work through this fairly well with wages keeping up with prices.
That's unclear if that will continue going forward.
So what then is the beyond the consumer,
what's the Fed's response do you think going to be, you know,
the effect especially on central banks and the plan around the interest rate hikes?
I think what we saw yesterday and what we've seen really this morning as
well with retail sales is that we have a really strong economy um and
that it's appropriate right now for monetary
policy to start tightening and probably to
start tightening a little bit uh more rapidly than the Fed had anticipated?
Uh even a month ago.
More rate hikes or do you think any bullet
earlier this week kind of hinted towards front loading
and a lot of people took that to mean a 50 basis point hike potentially in March.
I personally would find that really surprising that that
is really focused on communicating to the markets,
their, their intentions,
a 50 basis point hike right out of the gate would be um would would cause some
sort of volatility or would would likely not
be in line with the total market expectations.
My guess is that what we'll see in um in March,
it's a pretty clear communication plan that
outlines how they plan to raise rates over the next year.
You're getting a hold of inflation trying to cool things down.
Um, you know, through rate hikes is really a tight needle to thread for the Fed.
Is there a way where the Fed is able, you know, to cool down inflation while not
um you know, having the markets panic and us going into a potential recession?
Well, yes, I think the short answer is yes.
And I actually think that if the Fed were to do nothing,
we were likely to see some sort of um, you know,
really strong negative reaction from the market as
well with just crazy inflation running amok.
So right now I think the position we're in is where we need the
Fed to start tightening that might cost us some growth in the near term.
But I do think that that sort of paves the way for longer term
more sustainable growth over the next
two years.
You know, the dominant thing moving the market over the last two days at least.
And then you can go back as early as friday
really has been the situation between Russia and Ukraine.
On top of that being just a factor for the market is also a factor for inflation.
Right?
Given that, you know, energy prices really were the highest, you know,
the most volatile and hotter portion
of both the C. P. I. And even the P. P. I.
Um do you
anticipate
an invasion is going to continue to kind of elevate the cost of living?
And are there numbers out there in terms of the probability of that right now?
Yeah.
This this Russia Ukraine tension couldn't come at a worse time for the US economy.
And really for the european economy as well.
Both are experiencing elevated energy costs.
And I think that the volatility and the and the uncertainty
around the Russia Ukraine situation is adding to and exacerbating those price
pressures in terms of energy which I would expect to continue
to sort of eat away at consumers purchasing power and ultimately um
really sort of dampen the strength of the economic recovery both here and in europe,
we continue to see in europe consumers, they're growing really um
less optimistic as it relates to being able to pay their energy bills,
as it relates to being able to um maintain their personal finances.
And so I think that these,
these sort of global tensions are having very real effects right now in the economy,
even if the war or the military part hasn't started,
those tensions into themselves are
changing expectations and changing behaviors.
Ah
The big question that everyone wants to know the consumer, the investor is,
will inflation actually peak in 2022 is
the end near what are your thoughts on that?
I think there are two ways to look at it.
One is just sort of from a simple math uh perspective,
I would expect that as we start comparing price
growth um in March and april of this year,
prices in March and april this year with prices from March and april of last year,
we'll start to see inflation fall just because prices
were already starting to become elevated last year.
Um,
I think the other thing to note is I would expect over time,
particularly as omicron cases start to fall,
that we're going to see consumers increasingly reallocate spinning away
from goods more towards services that should in and of
itself reduce some price pressures and I expect that to
sort of carry us through the end of the year.
Yeah, I mentioned something like that yesterday.
So, so we're kind of in line that I really appreciate your insight john Lear,
Chief economist
at morning consult