Monday, August 13, 2018

Goldman: "Price pressures seem to be everywhere except the inflation statistics"

by Calculated Risk on 8/13/2018 10:37:00 AM

A few brief excerpts from a Goldman Sachs research note: Bottlenecks and Price Pressures: Pushing on a String... or Pushing Through?

Company commentary and business surveys increasingly highlight bottlenecks and price pressures, as well as a growing shortage of workers in the trucking, healthcare, and construction industries. Yet despite tight labor markets and rising input costs, core PCE inflation has yet to exceed 2 percent on a sustained basis. To paraphrase Robert Solow, price pressures seem to be everywhere except the inflation statistics.

Barring a sizeable rebound in capital formation or labor-force participation, capacity constraints are likely to become increasingly binding as the expansion continues. While the Fed may view further declines in the unemployment rate with some ambivalence, the implications of broadening labor shortages and product-market bottlenecks are more clear-cut, representing a textbook form of overheating that the Committee has historically taken great pains to avoid.
CR Note: I'm not worried about a period of inflation like in the 1970s.  There are many differences between today and periods of high inflation. Demographics are different (the baby boomers were entering the labor force in the '70s), workers have much less bargaining power now, and in the '70s, many labor and material contracts were tied to CPI (that is far less common today).