An extra-special cocktail of three powerful ingredients with no cherry on top awaits us in 2022.
Super-inflated asset prices such as housing, stocks, and bonds; massive inflation; and central banks that have started to react.
Many central banks have started pushing up interest rates; others have ended asset purchases. And Quantitative Tightening (QT) – central banks shedding assets – is on the table.
Rising interest rates in the US won’t catch up with raging inflation in 2022 – CPI inflation is now 6.8%, the highest in 40 years.
But unlike 40 years ago, inflation is now on the way up. In the early 1980s, it was starting to head down. We need to compare the current situation to the 1970s, when inflation was spiraling higher. So we’re entering a new environment where the economy will be doing things we haven’t seen in many decades. It will be a new ballgame for just about everyone.
As is always the case, the year-over-year inflation figures will fluctuate. CPI could go over 7% or 8% and then fall back to 5% only to jump again, providing moments of false hopes – as they did during the waves of inflation in the 1970s – only to race even higher.
Inflation has now spread deep into the economy, with services inflation picking up, and there are no supply-chain bottle necks involved. This includes the inflation measures for housing costs. Those housing inflation measures have begun to surge.
We know that the figures for housing inflation, which account for about one-third of total CPI, will surge further in 2022, based on housing data that we saw in 2021, and that is now slowly getting picked up by the inflation indices. They started heading higher in mid-2021 from very low levels, and they’re going to be red-hot in 2022.
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