Inflation Thoughts

Slow-Motion Theft

Mixed Expectations

Sticky Rent

Future Inflation Is Path Dependent

I’m at Least Thinking About Traveling…

But mouse-friend, you are not alone
In proving foresight may be vain:
The best-laid schemes of Mice and Men
Go oft awry,
And leave us only grief and pain,
For promised joy!

—Robert Burns, “To a Mouse,” English translation

ow much inflation is okay? People have different answers. I think it should be very low, but definitely positive to forestall deflation. Whatever your ideal may be, there’s a range of possibilities that would at least satisfy you. Political scientists call this range the “Overton Window,” a hypothetical box around the limits of acceptable policy. Anything outside the box is, by definition, unacceptable.

Ideologues figured out long ago the way to achieve unacceptable goals is to expand the Overton Window. If you can just bring your radical idea into the discussion where it’s not immediately dismissed, you are on the way to getting it adopted. Sort of like Putin wanting Ukraine to move its borders away from his troops.

The same applies to inflation. I have often written that I’ve been in the room with senior Fed economists and Nobel laureates privately advocating targeting 4% inflation. Nobody ever said that in public. But Bernanke says 2% and then Yellen and Powell suggest we should run hotter than that to get an average of 2%. Maybe two years ago you would have said 4–5% CPI growth was unacceptable. Now, having just seen a 7.5% year-over-year number, 4% suddenly looks a lot better. That’s what happens when the window widens.

Economists talk about “inflation expectations” because what happened in the past and what we expect for the future are two different things. CPI is the past. Worse, it’s not even a very accurate past, as we’ll discuss below. But whatever it was, it’s over. If you’re making some kind of financial decision you have to assume what inflation will be going forward. We all know what they say about assumptions.

The first part of this letter is going to be a general discussion around the concept of inflation and the second part will get into what you really want to know, which is the likely path of inflation over the next 12 months.

But first, we are putting the final touches on the 19th annual Strategic Investment Conference in early May. We have an outstanding lineup of speakers but I really am looking for a few more specific names that I’m having trouble getting in touch with. I’m wondering if you can help me? I want to talk with Matt Taibbi (he has been on fire lately, even though we seemingly are from different perspectives), Marc Andreessen because he is just so profoundly interesting and of course Ray Dalio as I want to touch on some of the points in his last book. If you can help me, send a note to [email protected]. And if you have some ideas on the conference, you can drop them in a note there as well. My staff will get them to me.