My apologies for the long delay since my previous post. I’ve been very busy with our firm and with a course concerning crisis preparation and wealth protection (available only in Finnish, for now).
But, I’ve been following the actions of central bankers very closely. The inflation picture is also darkening, fast.
On Wednesday, the U.S. Bureau of Labor Statistics reported that inflation in the U.S. had reached a 13-year high of 5.4% in September. In the Eurozone, inflation reached 3.4%, also a 13-year high, and in Germany 4.1%, highest in 29 years. Many workers in Germany are planning to strike for wage increases.
Thus it’s no surprise that the global inflation surprise index, by Citi, has reached the highest level since its inception. Also freight rates continue their relentless march upwards.
These all are signs of increasing inflation pressures, and that has started to worry the central bankers.
ECB President Lagarde stated that the ECB continue to view this inflation upswing being “largely driven by temporary factors” likely referring to soaring energy prices. However, German’s striking for wage increases is hardly a temporary shock. We should also remember that the ECB has tapered already, which tells a different story. The ECB board is worried.
The Fed is, quite straight-forwardly, signaling worries on inflation persisting longer than previously thought. But, if inflation remains this high, the Fed is massively behind the curve, again. Will they be able to bridge the gap? I think not.
Why have central bankers dragged their feet, then?
For two reasons. First, they know that the financial markets and the banking sector are unable to sustain higher rates. Secondly, they know that they have created a massive financial bubble and that they will face heavy political backlash, when it implodes.
Thus, central bankers are afraid, mortally, and this is when serious policy mistakes happen. Alas, we need to be prepared for hastening inflation, increasing uncertainty and, eventually, to all-encompassing financial crash.
I’ll return to these later.