Inflation threatens to turn 2022 into 'annus horribilis' for Powell, Biden: Morning Brief

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Yahoo Finance

Inflation threatens to turn 2022 into ‘annus horribilis’ for Powell, Biden: Morning Brief

Javier E. David · Editor focused on markets and the economy
Thu, January 13, 2022, 5:07 AM

This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Thursday, January 13, 2021

Surging prices are now both an economic and political risk

“Annus horribilis,” a Latin term that means “horrible year” is a term once famously deployed by the Queen of England to describe 1992, a tumultuous year upon which she declared she would not regard fondly. ... Given current trends, the same label may yet apply to the year 2022, as inflationary pressures scorch U.S. consumers at a rate not seen in decades, souring the political fortunes of a U.S. president barely a year into his term. It’s also conspiring to make a tough job even tougher for the Federal Reserve chairman he’s recommending for a second term.

On Wednesday, data showed that December’s headline consumer inflation checked in at a sizzling 7% pace year-over-year, with core prices logging a 5.5% gain — the highest since 1991 and the hottest rise over 12 months since 1982. While Wall Street took the news in stride, sending benchmarks on an unlikely rally as investors do what they do best — look beyond the bad news — at least two things have become clear.

First, it’s time to say sayonara to the environment of tame inflation investors and consumers once took for granted. Secondly, not only have businesses become comfortable with charging higher prices, but consumers have become inured to paying them (ideas the Morning Brief warned readers about late last year). ... “Once you have inflation, right, like when inflation goes away, things don’t have to get cheaper,” U.S. Bank chief economist Tendayi Kapfidze told Yahoo Finance Live on Wednesday. “They just have to stop increasing,” he added.

Although bond king Jeff Gundlach — who’s taken up the baton of Wall Street’s “Dr. Doom” from Noriel Roubini — said this week that he sees “recessionary pressure” building, even as strong demand inflates prices, a tight labor market and higher wages are far more than likely than not to keep supporting insatiable demand.

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