We were expecting it, and here it is—inflation! A true enigma for over 10 years. But now it’s here.
In the United States, 5% is a very high figure. Even excluding the most volatile elements, energy and food, the “core” inflation rate is 3.8% in May, something not seen since 1992.
Inflation is evidently driven by the explosion of demand fueled by the rise in household consumption and business investments.
After a near-total halt, the American economy is booming. And this creates an imbalance between supply and demand, leading to a rise in prices. Price increases in tourism, restaurants, and textiles. Which is normal. These are the sectors that were virtually at a standstill during the pandemic.
So why doesn’t this spectacular rise in inflation alarm the markets? One main reason: investors want to believe that this rise in prices will be temporary. That once the recovery euphoria subsides, bottlenecks will disappear, and prices will return to normal.
The benchmark rate, the US 10-year Treasury yield, has even slightly decreased.
This is precisely what central banks think and say. The US central bank, the FED, does not want to raise its interest rates even as inflation soars, as it believes that prices will calm down in a few months.
It’s a gamble. A big gamble!
