Sounds about right…
The latest consumer price index data this week revealed a searing 9.1% increase year over year in June, prompting Treasury Secretary Janet Yellen to say that inflation in the U.S. is “unacceptably high.”
The causes behind the steep jumps include high energy prices, pandemic stimulus spending and geopolitical crises — but one investor is blaming millennials.
Smead explained that in the U.S. there are an estimated 92 million millennials, primarily in the 27- to 42-year-old age bracket. “The last time we saw what we call ‘wolverine inflation’ — which is inflation that is hard for policymakers to stop — was when 75 million baby boomers had replaced 44 million silent generation people in the 1970s.”
“See, what everyone is not including in the conversation is what really causes inflation, which is too many people with too much money chasing too few goods,” Bill Smead, chief investment officer at Smead Capital Management, told CNBC’s “Squawk Box Europe” on Thursday.
“So we have in the United States a whole lot of people, (aged) 27 to 42, who postponed homebuying, car buying, for about seven years later than most generations,” he said.
“But in the past two years they’ve all entered the party together, and this is just the beginning of a 10-to-12-year time period where there’s about 50% more people that are wanting these things than there were in the prior group.”
“So the Fed can tighten credit, but it won’t reduce the number of people wanting these necessities in comparison to the prior group,” Smead said.
As the Fed pumped the U.S. market with liquidity (or some say, flooded it) and kept interest rates low over the last two years, its officials contended through 2021 that creeping inflation was “transitory.”
In late May, Treasury Secretary Janet Yellen admitted she had been wrong.
“I think I was wrong then about the path that inflation would take,” she told CNN’s Wolf Blitzer in an interview. “There have been unanticipated and large shocks that have boosted energy and food prices, and supply bottlenecks that have affected our economy badly that I … at the time, didn’t fully understand.”
The Fed has approved three interest rate hikes this year, with the latest in mid-June constituting the largest single increase in the country since 1994 at 75 basis points. After June’s inflation print of 9.1%, analysts predict the central bank could deploy a massive 100 basis point rate rise to combat inflation, which in the U.S. is at its highest in 40 years.
Atlanta Fed President Raphael Bostic, when asked earlier this week by reporters about the likelihood of the hike, replied, “Everything is in play.”