Five Factors Driving Inflation Higher REGARDLESS Of What The Fed Does — Don’s Daily Brief

by | Dec 12, 2022

Over the last few months, I’ve warned about the impending and inevitable recession.

It was underway even before the Fed got started — and all of that was leading to a bear market that is made deeper by the Fed’s tightening policies.

Now I want to talk about the five factors that are making inflation especially hard to fight — regardless of what the Fed does.

Most of them are the result of policies that have been under way for a couple of decades now — but now the chickens are coming home to roost.

1) The first is an aging work force taking a lot of people out of the supply of workers. With fewer people available to work that leads to higher wage costs. That’s really dangerous when it comes to inflation.

2) The second is global fragmentation. It’s not just Russia and Ukraine. It’s supply chains. Everyone is going into their own little corners. We’ll see how that plays out.

3) ESG (Environmental, Social, Governance) policies — very destructive to long term productive capacity, ultimately driving up prices.

4) Underinvestment in infrastructure — partly a result of ESG policies, partly a result of volatility in the energy sector and lack of confidence. That’s a very strong driver of inflation over the long term.

5) And finally, what I call the rate hike paradox:
The Fed’s rate hikes are actually encouraging people to spend sooner. They’re encouraging them to borrow, go deeper into debt. It’s increasing the velocity of money, which drives prices higher.

So there you have it — five factors driving inflation higher… Put that together with major recession and you end up with stagflation. Not good for anyone — and definitely not good for stocks.

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