Economist says inflation is a “way beyond” becoming a growing problem for markets

Inflation, which is now “much beyond” the fleeting narrative, is fast becoming a growing challenge as investors navigate the turbulent waters of sharp wage gains, labor market tightening and persistent price pressures, according to Queen’s College president and economist Mohamed El-Erian.

in a October 11 interview On CNBC’s Squawk Box, El-Arian said it became apparent inflation It would become “more and more of a problem for the markets” and that it would “separate winners and losers in an important way”.

Consumer price inflation is hitting a 30-year high and well above the Federal Reserve’s 2 per cent target, panicking central bank policymakers who face mounting pressure to roll back stimulus, even as they worry that the labor market has not fully recovered from the bottom epidemic levels.

And while there is a file CCP Virus (Chinese Communist Party) The pandemic made a lot of noise in US wage data, the jobs report released by the Department of Labor last week (PDF) showed that the monthly figures for hourly wage growth are beginning to stabilize and a higher growth pattern appears to be emerging. Average hourly wages rose 0.6 percent in September, while average hourly wages have averaged 0.5 percent per month over the past six months, about double the pace prior to the pandemic.

“My feeling is that we will see wage growth that exceeds price inflation,” El-Erian said. This is dynamically reminiscent of the kind of wage-price spiral that hit the economy in the 1970s.

On top of the Labor Department’s wage data, job opportunities in the United States hit a record high of nearly 11 million, and there’s no shortage of tales of employers enticing people back to work with all sorts of perks and signing bonuses.

“People are scrambling to find workers. People are offering all kinds of bonuses that will soon translate into the entire wage ladder – so we’ll see. wages Al-Arian said.

Market watchers “will talk not only about the level and persistence of inflation, which is already far from the so-called ‘transitional’ camp, but we will talk about how different sectors and different companies react to it.”

“It will be really important for equity investors to know how sensitive they are to inflation,” he added.

Not all economists share El-Erian’s view of constant inflation. Goldman Sachs Strategists predicted On October 11, stock markets will rise “as investors gain confidence that the current pace of inflation is temporary”. Those are sentiments echoed by analysts at JP Morgan Chase, who argued in a note cited by Bloomberg that inflationary fears would begin to fade.

This comes with the start of the corporate earnings season in the third quarter this week, as the markets are about to recognize the degree to which companies have absorbed the high costs of business inputs and the decline in their net profits, compared to the amount of these potential costs. to consumers in the form of higher prices.

Nineteen S&P 500 companies reported earnings this week. According to forecasts by Refinitiv IBES, earnings growth is expected to be 30 percent in the third quarter, down from 96 percent in the previous three-month period.

The S&P 500 fell about 5 percent last week, as both Goldman and JPMorgan advised investors to buy the dip.

That’s in contrast to a Deutsche Bank survey of market professionals cited by Bloomberg, who saw at least another 5 percent decline before the end of the year.

Continued

Tom Ozimek has an extensive background in journalism, deposit insurance, marketing, communications and adult education. The best biblical advice he’s heard is from Roy Peter Clark: “Hit your target” and “Leave the best for last.”

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