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Read this Periscope for insights into the future of inflation and how long it may last!
Doubleline Research Says…
In the last of two Periscopes on inflation, we look at the bottom-up research from one of our investment partners, Doubleline.
Ryan Kimmell believes inflation will last longer than most analysts. Last week, I unfairly summarized Doubleline’s top-down predictions as boring and gloomy. This week, let’s look at some of the research that I find more interesting: bottom-up.
When an economist says bottom-up, they are talking about looking at individual products first, then looking at the big picture of the economy afterwards. In my opinion, it is hard to do this well. Doubleline describes their bottom-up predictions in this portion of the video.
The Four Components of the Economy
What Ryan calls “bottom-up” consists of four components: food; energy; core goods; and the largest, core services.
Regarding food: it is the highest rate of increase in food prices at and away from home since the 1980’s. The Russian invasion of Ukraine is likely going to cause even more price increases, says Ryan.
Regarding energy: we are experiencing the highest rate of increase in energy prices since before 2006. This is not great news, but it is important to note that in America, we spend less on energy as a percentage of our incomes than we have in any time in history.
Regarding core goods: inflation is increasing at the highest rate since the 1980s. This is an anomaly, because usually core goods are deflationary. In the past, the more we imported stuff from overseas, the lower the prices would get. Now that trend is reversing! Shelter costs are increasing. Used car prices have increased dramatically. And, regarding core services: prices are also increasing.
So, in summary, Ryan sees lingering upward pressure on almost everything. Doubleline believes inflation will last longer than most people think. Ryan is a smart guy, and Doubleline has great slides. If you would like to listen to his forecast, skip to the last 10 minutes of the inflation video here:
