Transitory is the Groupthink Word of the Day

Not surprising to those of us in the real world, the Producer Price Increase (PPI) rose significantly in April.  From 

The Producer Price Index rose 0.6% from March, according to the U.S. Bureau of Labor Statistics. Year over year, the PPI spiked 6.2%, the largest increase since the agency started tracking the data in 2010.

Economists polled by FactSet were expecting a 0.3% monthly increase in April and 3.8% year over year. (Emphasis added.)

I do not know if I should laugh or cry that economists got this so wrong.  Do they not leave their ivory towers?  Do they talk to anyone that is actually in the real world and buying raw materials?  Have they gotten a freight quote recently?  Heck, do they eat chicken wings? 

More importantly, we treat economists as if they are experts able to see the future.  The hubristic economists that lead the Federal Reserve are confident they will know when to cut back on monetary stimulus in order to contain inflation.  Based on this data, the inflation cat is out of the bag.  Why do we think their long-range forecasts will be any better than their short-term forecasts? 

We are already hearing the pontificators talking about inflation being “transitory” and saying it will abide as the spikes due to one-time events end.  Yes, some of the inflation we are experiencing now is transitory.  Storms will not always damage plastic plants.  Pipelines will not be hacked (although that is not in this data).  But, as I wrote a while ago, we place too much emphasis on exact data (precision) and not enough emphasis on trends.

We have labor shortages due to demographics.  Free trade is decreasing.  Regulations are increasing.  Shipping small packages directly to consumers costs more than shipping large packages to retailers.  These trends will lead to an inflationary environment that we have not seen since the 1970s.  Don’t count on the Federal Reserve or any government entity to provide any help in navigating these trends. 

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