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Chart Of The Decade

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ALL Inflation Is “Transitory”!

It is not difficult to plausibly argue that, certain positives notwithstanding, the existence of central banks (through its ever expanding reach and magnitude of interference in free-markets) is also a major contributant to the structural problems in society financially, and by consequence most other collective aspects; Ron Paul made a career out of trying to point that out to little avail. On that scale, one can call, minor, the abject failure to address the tide of inflation in 2022-23, calling it merely “transitory” followed by drastic but far-too-late action to slow economic activity at any cost.

But the merits of the central banks’ action in this particular small window in history remains to be judged later and elsewhere. Here, we want to make quantitatively firmer our recent claims that inflation is here to stay and has a long-term root in (multi-decade) grand tides of demographics, geopolitics and dictates of immutable geography and giving rise to tangible consequences notably (for example) in de-globalization and educated labor shortages. The central bank can only make large ripples on top of a metaphorical body of water.

The chart below overlays the path of the CPI from the 18 year period of Jan-1966 to Dec-1983 onto the period Aug-2013 to Jul-2031. After a simple normalization for the amplitude, we see a truly jaw-dropping correlation; judge for yourself:

Just an entertaining accident? Maybe; granted, a single variable correlation in a (very) complex (very) non-linear system is a poor choice of a bankable model, but the correlation is striking. In reality, it is another shred of evidence supporting the lines of reasoning for probable persistent inflation and difficult days ahead in adjusting to the new “world-order”. The close matching of shapes, timing and amplitudes may easily be an accident but the universal fact remains: when you cause a ripple, it will propagate.

Calling it QE, QT, MMT, Communism 2.0, Pandemic response (forced business shut downs and helicopter money), or whatever else you will, interference with free-markets is never localized in consequences in time or space, the same as pushing on a spot on a water balloon (because you don’t like the shape of that spot) will result in redistribution of pressure all-over the volume of the balloon. In the end, it’s the rules of nature that determine how things proceed, regardless of what politicians, economic philosophers, or J-Po wants.