How Temporary Becomes Permanent

Today’s CPI came out at 7.9%. This isn’t just oil and food – core CPI isn’t far behind. More generally, the issue is that inflation is now starting to seep its way into wages. And then it becomes persistent and permanent.

This graph displays CPI, Core CPI, and Wages (right axis) from the Atlanta Wage Index. This is a better measure of wage changes than what you see in the BLS report.

You can see the CPI started moving up early in 2021. However, wages really didn’t start moving until the last 6 months and now they are rapidly increasing.

Unfortunately with rents and oil CPI is only going to get worse over the next couple of months. Wages will continue to rise, which means more money to spend, which means more demand, which means more inflation.

I still believe we’ll have a gut in a lot of things next year – streaming services, chips, etc. But if wages continue to increase rapidly, the Fed is going to have no choice to be aggressive.