The inflation may look transitory but if you look carefully, you can see there is something highly disturbing and that led us to believe that there is a great chance that the inflation could turn into Transposing, rather than remaining Transitory - switching from one commodity to another – pushing up prices of commodities and could remain embedded in the economy for the foreseeable future, hitting different segment of consumers and businesses at different times, as far as we know, no one knows the exact extent and duration of its impact.
However, the net outcome would be the same and will be felt by the consumers and businesses alike, the prices may remain elevated longer than the Fed’s current expectation and contrary to the predictions of most economists, we think, there is a chance that inflation could rise, higher than the Fed’s target, and could be embedded permanently, denying the low wage earners any meaningful benefit of recent wage gains.
When Inflation turns from Transitory to Transposing, jumping from one commodity to another, as you’ve noticed from Lumber to Coffee for instance, what can the Fed do? Is there a tool to target a specific or a basket of commodities? And you know the answer!
The key question is: how the consumers and businesses adjust to the new reality of unpredictable Transposing Inflation.
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