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  • 00:00Prices might go up in fact we're expecting a headline prices togo up soon. We'll get some of these base effects from last spring. What is the main thing that whether it's the Fed orinvestors or anyone else thinking about this question should be looking forward to get a sense of whether inflationary pressuresare something to worry about or something that is just you know transitory to use a popular term.Thanks for having me on. So I think the key ingredient to really make inflation a persistent phenomenon and not a transitoryphenomenon is wage incomes. Right. That is kind of the critical thing if we try to distinguish between sort of one off itscommodity prices or airfares or lodging prices. All of those things I think we can expect we'regoing to see some price effects as a result of reopening. That's a result of vaccinations. And that's going to be in the yearover year reading for approximately 12 months. But when we think about how this is actually going to sustain over time. Right.Especially we think about a lot of these fiscal relief packages that are meant to kind of keep people whole for being there. Allof those different facets are really one off in nature. They are transitory because we're not going to just do fiscal reliefpackages every year. We're not going to be passing this kind of big legislation every year at least under the currentcomposition. And in the absence of that the real thing to look out for is arewe going to get the kind of tight labor markets that mean that when prices go up wages are also going up alongside them. And ifthat's the case which is something you saw in the 70s which is the kind of bigsort of shadow looming in the background of all these inflation discussions that's the time when we actually did see wages grewand prices also groups in this circumstance if we just see prices adjust on a one off basis. Right. One I don't think theFed should be reacting this way to what the Fed has been indicating. It doesn't seem like they are inclined to reactparticularly hawkish Lee just because we see. Right. Airfares adjust aggressively in the second half of this year.OK. So it's kind of interesting you make the point of airfares because you've got a great chart in your piece that really showshow much really you have yet to see the services sector explode from all the pent up demand that is still willing to get outthere. Yes we've been spending on on long term items. We've been decorating our homes and building but we haven't been able tobuy RF as we have been able to go out to restaurants. But if we do start to see that and if we do start see perhaps even the 15dollar our minimum wage finally get passed that's something that's being talked tough. If we do start to see some of themore new fiscal approaches being passed into law and perhaps driving wages higher. Could could that be sustainable in someway. I think I don't want to sound dismissive of this sort of set ofscenarios. They're all kind of possible in various ways and a lot of things can intervene to change the trajectory. The notionthat we could have a really strong recovery because we passed two really big fiscal packages that really bring us back to atight labor market and maybe hopefully beyond that in terms of strong wage growth that there are some inflationaryrepercussions. I wouldn't dismiss that out of hand but I think we are a long way from that right now. It's a scenario that ifwe do see the kind of if the economy is firing on all cylinders doesn't hit anynegative shocks. And we've got an infrastructure bill a fiscal relief bill and the vaccinations and reopening is going to movesmoothly through the second half of this year. Having a economy that's running closer to the kind of pre pandemic labor marketsomething hopefully better over time can have certain impacts on inflation. I don't want to dismissthat. I think that that's a scenario that's a scenario where a lot of things have to go. Right. If they all go right. Are wetalking about wage growth and inflation down the line because of it. I think that's a more realistic story. If you can getthrough all of those different hoops and we do see expansive fiscal policy a pretty accommodative Fed especially given thatright now we are talking about really high levels of unemployment really high levels of non employment and likely tosee pretty meager wage growth until so scant. So keep that OK. Hold that thought on the wage growth then because I want to getyour thoughts here on how commodities tie into this. We've obviously seen an appreciation for oil prices even before thedisruptions in Texas. We've seen a massive increase of course in industrial metals. Copper aluminum tin are trading at recordhighs with those increases that we've been seeing in those prices and the current levels of wage growth. When you add thatup into whatever calculus you use here does that amount to sustained inflation. I think as of now no I think it reminds mein some ways of the other when we were at the other side of the commodity supercycle back in 2007 2008 right. We had highcommodity price increases then too. And yet we didn't really see. We saw wages and employment go the other direction. So ifprices just increase on their own and we don't see sort of the sort of concurrent for future wage growth kind of match that tosome degree what we're going to see is a relative price change. Right. And that relative price change is one off in nature. Itmeans lower real incomes for Americans. But it's not the kind of thing that monetary policy really solves if you try to raiseinterest rates to try and solve that problem. You're actually probably going to make things even harder because what youreally want to see is that you get that one off price through the system but you really shouldn't be focusing on commodityprices which are especially volatile. Right. And there's like a base effect. It's going to it's going to show up in like CPI tosome extent. Maybe I'll show up and CPI and NBC. But really we're talking with a longer run trajectory of the economy andthe sort of stickier forces I think labor markets where it's at. Scott the real quickly we have about 30 seconds. What havechecks and fiscal stimulus just becomes a permanent part of the policy landscape. And before every election politicians want tosend out checks. And every time there's a little weakness it's checks. And so that this is not one of could we actually startto get a new trajectory towards inflation if it really looks like the way we conduct macro. I know there's a long questionchanges and I think there is I think a little bit more rigorously about that. We see income replacement happen and notthrough your wage but it's happening through the government. Right. And so you see as the incomes are shifting in terms ofwhere you're getting them from then the question is does that lead to more consumption.That's an open question right. There's some ways people do spend more. But as they sort of get higher in terms of like their bankaccounts and their how much wealth they have there's a spending pattern change.What kinds of goods they spend on is that all commodities and that sort of ship services and they start to shift towardstrying to save for longer term purchases and investments. That's a little more open. But I'm I'm open to that discussion. Right.And the point that we actually get there. But I think it's just like we're so far away from that. I think it's just importantthat might this moment is we're in a moment of an emergency a crisis. And that's kind of what has to be addressed first. Idon't think anyone's proposing UPI aside from Andrew Yang.
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Wage Incomes Are Key to Persistent Inflation: Skanda Amarnath

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February 19th, 2021, 11:27 PM GMT+0000

Skanda Amarnath, director of research and analysis at Employ America, discusses his latest inflation report with Bloomberg's Caroline Hyde, Romaine Bostick and Joe Weisenthal on "What'd You Miss?" (Source: Bloomberg)


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