By Michael Every of Rabobank
Sic Transit Gloria Mundi in Latin, ‘Thus passes worldly glory’ in English, used to be said at papal coronation ceremonies. Today what is passing is the glorious promise that world inflation was transitory. The Fed’s Bostic is the first major central banker to openly admit that “Transitory is a dirty word.” Speaking with a glass jar labelled “transitory” at his side and depositing $1 each time he used the “swear word”, he underlined “It is becoming increasingly clear that the feature of this episode that has animated price pressures --mainly the intense and widespread supply-chain disruptions-- will not be brief. By this definition, then, the forces are not transitory.” We get US inflation today, where the market is looking for a 0.3% m/m print, 5.3% y/y, and 0.2% core, 4.0% y/y, meaning negative real average earnings growth yet again.
The NFIB SME survey, which dipped again yesterday, likewise argued: “Small business owners are doing their best to meet the needs of customers, but are unable to hire workers or receive the needed supplies and inventories. The outlook for economic policy is not encouraging to owners, as lawmakers shift to talks about tax increases and additional regulations.” The report showed a record 51% of all small businesses reporting job openings they can’t fill, and a net 42% raising wages to help offset the shortage, which is a 48-year record high reading.
Does this imply a more hawkish stance is therefore needed from central banks? That remains to be seen: but we certainly saw a bearish US curve flattening yesterday, with 2-year yields up and 10-year yields down....