Okay, joining US hours Stephen Blitz, his chief US economist at TS Lombard, having a look at that inflation data in a bit more details. Stephen, welcome to the program. Having a look at that CPI print. And when you look at it in a more granular way and take a deep dive, what the points that you made which we are encouraging, the ones which perhaps didn't really cause much.
I guess I didn't send your mind. In other words, yeah, I mean I think I think that what you see in the in the details, UH, is that what I call the cp I V every day that inflation has actually been coming off UM. And so that's a that's a good sign, but actually it's a double edged sword because that means, especially with weakening at gasoline prices UM.
Usually you know, you get that going into an economy where the labor market is slowing, unemployments rising, wage growth is started to come off, you have the opposite which has never really happened before. And so you're actually all this real wage real income laws. UH. In the first part of this year, UH may start to reverse a little bit and give consumers a little bit of h
of a lift. We'll see tomorrow retail sales. But we do know that not a lot, but we are seeing the inching up of confidence over the last few months in terms of UH consumers as well as small business. You know, listening to a lot of commentators, many of them cite that when you see spikes and inflation going back over the past fifty to seventy years, you usually
see them go straight up and then come straight back down. Um, but this kind of feels like, since a lot of it's baked into two wages and to um owners equivalent rents, that that maybe it's going to stay up there for a while. I mean, what's your sense of how long this inflation will persist? It's going to right, And so I'm laughing when you said that about this spike, because I I can remember the seventies I was, and you
know that was up until VOLCA. Every time they said tightened, the market's got very optimistic inflation would come down, because that was always the lesson of US inflation. You had spikes, and then it would would it would come back. The difference is here you have spike also for all the reasons that you know, everybody's talked about, you know, forever well, maybe not forever, but for the last year or so.
And but what's happened now is that it's given way way to a strong wage cycle and that's not going away anytime soon. Uh. And you've got a permanent shift in terms of reduction and supply of labor in the US. You have three and a half percent unemployment. As a result, you've got seven percent nominal wage growth and uh, coming into next year, you're gonna get almost a nine percent increase in the social earty payments, which impacts about seventy
billion people. Uh. And so you know, and and even if inflation starts to lag, here is a long as the employment market stays tight, next year, people are gonna be looking for another round of high wage nominal wage growth. Maybe it's not seven, maybe it's five or six instead, but it's still gonna be high. And that's how these inflationary cycles begin to take hold. They have a long life, as you alluded to, and the said things four and a half is going to be enough, and I'm telling
you it's not. But tell me something here, Steven. I mean, surely you know we're going to be in trough full or five months seeing a big drop off arguably given that we have base effects. Yeah, but you're talking about year over year stuff, and the set really looks at month over month, and it looks at month over month
on a three month moving average basis. And when I look at um inflation in UH T, P i X, food, energy, and rent, right, it's running on a three month basis, it's running it around six and that's not going to come off so quickly. And the issue has always been not that inflation is going to come off. We know, we knew from the get go was going to come off.
The issue was always to where the FED was always assuming, given the global situation that and that was the transition argument, that it would drop down very quickly, back down to to three percent range, or at least three percent, and that's proven wrong. Uh And that's where the wage cycle taking hold is going to keep inflation high, especially in the service sector. Stephen, Why is the US economy holding up and why are jobs holding up given the three
plus basis points and hikes that we've seen. Well, you know, that's a great that's that's really the great question, because you know, my profession is they're all falling over each other. Trying to find the reason, see what's gonna break and what's gonna blow up. The real question is what you just asked, how is it that it's still very resilient, And the fact is that you are seeing some slowing you slowing in real estate, you slowing in private equity,
you know, related fintech and things like that. So it's sound as if, yeah, the world isn't slowing down, but it's maybe maybe. Like Jamie Diamond said, the first three percent is one thing, but the next three percent is a whole different story. Stephen Bliss has been with us from TS Lombard