April 1, 2021
The quarter ended yesterday. If we look across markets, practically everything was up big on the quarter.
Lumber was up 41% on the quarter. Lean hogs, up 50%. Crude oil, up 25%. Copper up 14%. European stocks up 10%. Japanese stocks, up 8%. U.S. stocks (S&P 500), up 7%.
The expectation for the quarter was for a new administration to come in a pour even more gasoline on a fire of global liquidity. And that's precisely what has happened.
With that, we've laid out the inflation tale. That reflection in asset prices has been very clear. It hasn't been as clear, and widespread, yet, in every day consumer prices. And it (inflation) has yet to bubble up in the Fed's favored inflation gauges.
With that, tomorrows jobs report will be big deal, not just for the employment numbers, but more so in the wage data. This is what will drive the Fed's inflation barometers.
Here's a look at the chart from last month …
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As you can see, the wage numbers have been hot, and this piece of the inflation puzzle will remain hot. Why? This reflects demand for labor that's competing with a government paycheck. You have to pay them more to them back to work. And it reflects raises and bonuses that were given to essential employees at the depths of the health crisis. Not surprisingly, those pay increases are proving to be "sticky." We've talked about this dynamic since the Fed went all-in back in March of last year. We were looking at a reset of asset prices. We were looking at a reset of wages. We’re getting both. This is where the Fed will be put in a tough spot in the not too distant future. Rising wages will be accompanied by rising prices, and the Fed will be forced to act. |