WHAT INFLATION? WHERE?
As U.S. Fights Today’s Problems, Tomorrow’s Inflation Starts to Stir
The dual impacts of the expiration of many Cares Act payments in the fourth quarter and the post-holiday Covid surge are apparent in the latest economic data. Retail sales suffered their third monthly decline in December after negative revisions for November and October. Last month’s drop was a worse-than-expected 0.7%, while the so-called control group (excluding gasoline, automotive, building materials, and food services) that figures into GDP calculations was down a steep 1.9%.
Despite these signs of a renewed downturn, the biggest threat to the stock market is inflation, contends Peter Boockvar, chief investment officer at the Bleakley Advisory Group. That’s even with the consumer-price index rising just 1.4% from its level a year ago and 1.6% excluding food and energy costs. Inflation has been curbed by flat or declining prices for goods, while costs for services have steadily risen. But now, supply tightness is beginning to show up in goods markets, from DRAM chips to a broad range of commodities, from petroleum and metals to grains, he observes.
Eventually, that will feed into still higher bond yields, which will take a toll on stocks, he argues. “In 2021, it’s easy to project the trajectory of earnings and the economy,” with the certain rebound from last year’s unprecedented collapse, he says in an interview.
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