According to market analyst Jim Bianco, the government’s efforts to decrease inflation are doomed to fail.
Inflation data released this week will support his claim, he believes.
“I can’t think of anything that will slow down inflation. The president of Bianco Research said on Monday’s episode of “Fast Money” of CNBC that there are some things that might lower the cost of prescription drugs as well as perhaps a few other things. And how does that affect the CPI? Does the core CPI go down to the point where we can start factoring that in? Not in my opinion.
On Wednesday, the government releases its July Consumer Price Index [CPI], which measures the price of goods and services. The percentage will be 8.7 percent, down 0.4 percent from June, according to Dow Jones. The headline statistic includes food and energy, in contrast to Core CPI. On Thursday, the government releases its Producer Price Index (PPI).
According to Bianco, the peak in inflation may still be forthcoming.
“Inflation lasts a long time. Will it continue to be 9.1 percent? Most likely not. But it might eventually level off at 4 percent, 5 percent, or 6 percent,” he warned. We’ll need a funds rate of either 5 or 6 percent if the inflation rate stabilises at that level.
Bianco claims there is no quick solution. He issues a warning that as long as robust pay numbers are reported, inflation will continue to engulf the economy.
According to the data we saw on Friday, the rate of wage inflation is 5.2 percent [year to year] and it seems to be staying put, says Bianco. “If we are earning 5% salary, you can afford to pay 5% inflation. Then, it won’t drop much below earnings. We need to lower salaries to 2 percent because they are currently stagnating in order to lower inflation to 2 percent.
“You’re going to have to walk if you don’t want to pay more for that car.”
Bianco uses the price of used cars as an excellent illustration of relentless inflation. He believes that high sticker costs won’t move considerably for months due to supply-chain issues, high demand, and chip shortages that compel automakers to reduce features in new cars.
The only option to currently catch a ride is to walk, according to Bianco, so if you’re not willing to pay more for that automobile, you’ll have to do so.
According to the CarGurus index, the average price of a used car is $30,886, up 0.2 percent over the past 90 days and 10.5 percent from the previous year.
In the past 18 months, used car prices have actually outperformed cryptocurrency, he continued. One of the best investments anyone could make, according to some.
According to Bianco, the Inflation Reduction Act, which the Senate adopted this past weekend, would only have a small impact if it were to become law.
According to Bianco, many of these items won’t begin to function for several more years. In a world where we want to know what the Fed will do in September and when inflation will peak, those are ’22 and ’23 narratives. Those will continue to control the markets.
The idea is expected to be put to a vote in the House on Friday.