high was 19.7% in March 1947, but that truly was an extreme situation as the consumer economy absolutely boomed after the war, and prices made up for a decade of deflation in the 1930s. and Canada in the immediate aftermath of WWII. (Full disclosure, I have precisely zero first-hand experience with the 1950s, but was well acquainted with the 1970s!) The peak inflation rate of the past 100 years was actually hit in both the U.S. You get the picture.įirst let’s take a brief recap of the history of the 1950s inflation experience. Think West Side Story, not Saturday Night Fever. So, when considering the inflation outlook, think Elvis, not Elton. Everyone wants to talk about the 1970s, and its Rocky Horror Inflation Show, but the 1950s may in fact be the better comparison. However, the focus may be on the wrong decade for a historical lesson of past inflation episodes. Piling on, unemployment rates often visited double-digit terrain in those tough years, in what was a true example of stagflation. That sorry episode did not reach its crescendo until inflation peaked at nearly 15% in early 1980 (and, painfully, not until mid-1981 in Canada, albeit at a ‘tamer’ apex just below 13%).
#TALKING POINTS MEMO FULL#
headline inflation averaged 7.4% (and 7.5% in Canada), a full 5 percentage points higher than the prior decade’s norm. To look for historical guideposts for what lies ahead, it is now quite fashionable to harken back to the unfashionable 1970s, the era of the last great inflation. One-year inflation expectations have pushed up to almost 5% in the survey. Inflation concerns are likely behind the deep drop in consumer sentiment, with the University of Michigan index falling to 66.8 in November, even lower than the depths of the early pandemic in 2020. With headline CPI gripping the 6-handle, inflation has clearly gripped the public imagination in a way not seen in decades. Stocks blinked hard at the meaty CPI, but the S&P 500 was headed for less than a 1% pullback from Monday’s record close. Some cooling in energy prices and a further marked pullback in freight rates (Baltic Dry) calmed the waters somewhat. Treasury yields pushed higher in a broad flattening move-the biggest rise was a 20 bp bump for 3-years-but the overall curve doesn’t look wildly different than just prior to last week’s Fed tapering announcement.
And the upswing is certainly not confined to the U.S., as Germany posted its highest inflation rate (4.5%) since 1993, and Canada is primed to report its fastest result since 1991 (we estimate 4.7%) on Wednesday.Įven so, markets are now seemingly inured to ever higher highs for CPI, apparently still on board with the Fed’s loosely defined transitory narrative. We have been relative inflationistas since the early spring-persistently warning of upside risks-but even we have been consistently surprised by the ferocity of inflation this year. Aside from a brief spell in late 1990, when oil prices soared in the lead-up to the first Gulf War, inflation has not explored the 6% zone since 1982. consumer price reading, which famously saw inflation jump to 6.2% y/y in October. After an initial stumble, markets responded reasonably well to the latest shocking U.S.
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