November 15, 2021

Inflation: Transitory Or Not?

It is difficult to make the case that the U.S. economy has completely maxed out the use of its productive resources. Employment has yet to return to pre-pandemic levels and the same can be said for capacity utilization. Temporary bottlenecks are preventing the economy from tapping its full productive potential. Whether the supply bottlenecks have a longer lasting impact on inflation depends on two inter-related factors: inflationary expectations and wages. Should investors worry about unanchored inflation expectations leading to a wage-price spiral?