Inflation Psychology Begins to Change

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I am beginning to see more and more stories about price hikes in various and sundry publications. Today’s Wall Street Journal and New York Times contained no fewer than three articles on this topic, with the front page of the Times featuring a story headlined, “The Price of Prevention: Vaccine Costs Soaring,” which reported the following: “Vaccination prices have gone from single digits to sometimes triple digits in the last two decades, creating dilemmas for doctors and their patients as well as straining public health budgets.

He’s Got a Few Reservations

Meanwhile, on the NYT op-ed page, successful restaurateur Danny Meyer penned an editorial headlined, “There Goes the Neighborhood Cafe: Rising Rents Are Killing Off Manhattan’s Local Restaurants.” In it he stated, “Because the market suggests they can, landlords are using this moment to demand the significantly higher rents they’ve been waiting for since first betting on their neighborhoods. In our case, the advertised rent is triple what we are now paying.

The Wall Street Journal, on page two, ran a story headlined, “Retail Rents Rise As Low Vacancies Bolster Landlords,” and noted, “Shopping center owners continued to increase rents in the second quarter as a host of retailers in expansion mode jockeyed for dwindling available space in the existing high-quality centers… Meanwhile, the shrinking vacancies allowed retail landlords to raise rents at malls for the 13th consecutive quarter and at strip malls for the 11th.”

Down the Road Looks a Little Steeper

That is the way it is with inflation. Price increases leak out all over the place. When you print $1 trillion in a year, to think that much printed money is only going to boost asset prices and not push up the cost of goods and services (and thus the rate of inflation) is just plain silly. What we have not seen thus far, though I think that is beginning to change, is an adjustment to people’s expectations of future inflation. Once it occurs, it is almost impossible to reverse that psychology, as we saw in the late 1970s when solving the problem required Fed chairman Paul Volcker to take interest rates to high double digits.

When folks look back on this period they are going to shake their heads and wonder how people ever concluded that all this money printing wouldn’t end in wild inflation.


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About Bill Fleckenstein