• Clifford Bennett , Chief Economist at ACY Securities


• 11.08.2021 12:15 pm
trading

The party is not over. The tussle is ongoing. With inflation data in the US due, there is plenty of room in the second half of the week for increased volatility.

Expect the US inflation number to be around 5.8% on the year. This is higher than consensus, but consensus is just a matrix of views based on what happened last time, not wanting to get it wrong. Outliers are the norm for actual data outcomes relative to forecasts.

We just had US Productivity, shown above, which displayed a slowing. The previous quarter saw a gain of 4.3%. Q2 saw a slowing to 2.3%. A good number, but the slowing points to a corporate behavioural shift.

Which slots in perfectly with my thesis, that the current inflation surge is being driven by the 'freedom of pricing' breakthrough. Businesses are basically making hay while the sun shines. Which is what they are supposed to do. Seizing the moment to increase profit margins via pricing.

The main reason for productivity growth over the past 2-3 decades, has been the inability to raise prices. Intense global competition price pressures ensured any raising of prices risked losing market share. The only door left open was to increase productivity to at least match rising input costs. Profit margins were severely squeezed.

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