Inflation Is Here – How Long Will It Stay?

I’m currently working on an article that focuses on the potential impact of inflation on equity prices. No one will argue about the massive amounts of liquidity that are slushing around in the system. An amount of liquidity that under most circumstances would be driving run away inflation right now. The reason we don’t have any inflation right now is because the velocity of money has tanked.

But inflation expectations vary widely and even more so if we break down short-term versus long-term inflation. We are recovering from one of the fastest and deepest economic contractions which was met by the largest government stimulus measures ever. And still, inflation remains relatively low.

In fact, the Fed has tried unsuccessfully to spur price increases since the Great Financial Crisis but it has remained stubbornly low except for a few brief moments where it read above 2% – the Fed’s target.

Now the Fed is intent on letting the economy run hot for some time before raising rates and the debate started about whether it is a risk to long-term economic growth or if it is expected to spike only during the short-term before settling in to a 2%ish range.

I know this: housing prices are skyrocketing, gas prices are spiking, food prices are growing at double digits, and now the Producer Price Index came in above consensus forecasts. When inflation starts gaining traction, it first starts appearing in the PPI and makes it’s way through the value chain to CPI (The Consumer Price Index).

So inflation is already bubbling under the surface. The question is whether it’s just a short-term occurrence.