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Ever since the financial crisis of 2008 and 2009, people have been asking: When are we going to see inflation?
Inflation has been benign over the last couple of years. There are some things that we are looking at, though. For example, if you look at unit labor costs, they’ve been increasing recently. The price of containers for shipping has gone up, and if you look at commodity prices, we’ve seen a big move in oil and a big move in corn as well. There are signs that inflation is increasing. But the most important thing to think about when it comes to the economy is really what we would consider to be the “output gap.”
The way that I think about it is, if the U.S. economy were a giant conveyor belt, that conveyor belt is not at full speed right now. We’ve seen a big decline in that output gap. Until we see growth, we need to see that rocket ship taking off into the second half of the year. Until that happens, I do think that inflation, although it may be increasing, is not going to be the biggest worry that we will see over the next six to 12 months, even if we do see increased stimulus and the deficit increasing.
Inflation increasing would actually would be a good thing, because it would mean that the economy is growing at a much faster clip than it has been over the last couple of years.
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*Webinar recorded after the market closed on Wednesday, January 27, 2021.
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