To summarize my argument; I think what will likely happen is that consumption by those able to spend freely right now will move from WFH areas to standard outdoors retail/entertainment. However, I DO NO think there will be any significant additional expenditure by those unable to spend right now.
There will be a DISPLACEMENT of spending, but not much of an overall increase. Certainly not enough to move the needle with the official inflation calculations.
Now, some context and clarification.
I think I broadly disagree with the general literature being flagged around "unavoidable inflation" in the coming months.
Specifically, I am saying that I expect there to be a displacement of inflation from some segments of the economy to others. I DO NOT expect an overall increase in inflation by any significant amount.
Among other reasons why I think this will happen:
1) People keep making statements such as "economy fully opening up and people with pent up demand unleashing it". There seems to be a base assumption that MORE people will spend MORE money, MORE of the time.
As I see it, this assumption is mistaken. There are still approx 9.6 million people unemployed (as JPow said, looking at unemployment numbers as continuing claims + labor participation rate drop).
Even a generous estimation of how many 10s of millions are unable to spend due to this 9.6 million unemployed will likely undercount to impacted number of people.
In other words, the K shaped recovery will continue. The poorer sections of the economy have not been saving up large chunks, despite what you might see in terms of overall bank customer savings numbers. Them getting back to their jobs will have some impact on demand for regular offline retail and some improvement in their overall finances, but not enough to move the needle towards significant inflation.
Now as to why I think the economically weaker sections are unlikely to increase their spending much:
While they were much more financially impacted by the lockdowns, a part of their unavoidable financial spending was cushioned by a combination of rent and loan moratoriums, as well as stimulus payments. So while they might get back to their jobs and have a slightly higher spending pool available, their financial requirements will increase as well.
So they increase their spending on rent and travel, but at the same time, the govt' reduces and closes down programs of emergency rent assistance and addiotional stimulus payments become less likely. So overall the total spending in the economy is increased by a much smaller proportion than expected.
Keep in as well the fact that a section of society that has so suddenly and cruely been financially impacted by a unexpected pandemic, will have atleast some lasting ptsd related to it, and are much less likely to go on a spending binge unlike their more well off counter parts.
Submitted March 20, 2021 at 05:00AM by GabenFanClub https://ift.tt/3cSJ8qm
