Ten Macro Drivers of US Inflation
We list ten major macro drivers of inflation in America, both short- and long-term, and our goal is to discuss how they are likely to affect future inflation. However, they cannot be switched on and off at will, so there are very few active cures for inflation and even fewer in the hands of the government.
We conclude that if inflation subsides near term, it will primarily be due to the fading of the Covid stimulus, commodity prices declining, and supply chain bottlenecks easing. It’s unlikely to subside because the Fed tightens too much, at least directly. But the Fed could affect markets indirectly by triggering sharply higher rates or a stock market crash in response to perceived inaction or overreaction. In the long term, the key drivers of inflation are demographics, which are inflationary, versus automation and globalization, which continue to be powerful disinflationary forces. We argue that the net effects could result in higher long-term inflation and bond yields.