Inflation Re-Acceleration Risk is Real

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by VBL
Monday, Sep 04, 2023 - 17:06

Hello Anti-Goldilocks

Authored by GoldFix ZH Edit

During an Anti-Goldilocks situation, when corporate profits rise, unions get emboldened to ask for pay raises. It also means consumers are ok with paying higher prices as companies raise them passing through costs to increase profits.


TS Lombard noted that unless employment breaks soon, inflation will likely reaccelerate. This would be due to corporate profits turning a corner after a slight slowdown.

The report's key points are:

  • Surprise upturn in Q2 nonfinancial profits (taxes fell) stabilizes wages and hiring.
  • One quarter is not a trend, and Q3 sees raised capital costs for firms.
  • Employment trends, mixed for now, have added importance – if they do not bend soon, it means profits are improving and more hikes are coming.

The report's author, Steven Blitz MD and Chief Economist concludes:

"In sum, the profit pickup in Q2 means that the coming run of employment data has added importance. To be clear, there will be nothing in the August report to push the Fed to hike in September. But current employment trends reflect profit losses pre-Q2, and inflation lags employment. If, employment data show some undue strength, then, rounding back to the turnaround in Q2 profits, an uptick in hiring would be a strong signal that the Fed will raise rates further."

He goes on to add we are not out of the woods on a recession yet:

 "I still lean towards recession sooner than later, based on the jump in real yields at the long end and the inventory cost-of-carry, on top of everything else – including warnings to mid-size banks to get their balance sheets in order."

But his analysis does put a no-recession chance firmly on his radar which would accompany a reacceleration of inflation... If the job market does not crack soon.


Bottom line:

While unemployment may indeed be turning a corner for the worse signalling the Fed should stop hiking and maybe even ease, there are problems.

Inflation may not be over by a longshot. In fact, it is getting baked into the mindset of unions (unafraid to ask for profits), corporations (unafraid to pass through increased costs) , and consumers (who keep paying them).

Oil has turned markedly upward. Now corporate profits are potentially growing again. Those two things definitely signal an inflation uptick is in the wing if employment does not crack.

Below is a sample of this week’s posts after the overview of TS Lombard's new report on corporate profits.


Week’s Stories:

The first post  below is brand new as well. It is our Sunday Market discussion  focused on the CoTGold report (Some posts are premium)

Continues here ...


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