Understanding the End of the Inflation War: A Comprehensive Analysis
1. The Perception of Inflation: Prices vs. Price Growth
Ken Fisher argues that the war on inflation is over, emphasizing that inflation is about the rate of price growth, not the absolute price levels. While consumers may still feel the pinch from high prices, particularly for essentials like eggs, the key metric is the rate at which these prices are increasing. The Consumer Price Index (CPI) shows a 3% annual increase, indicating that inflation is slowing down from its peak.
2. Economic Indicators and the Fed’s Target
Fisher points to the personal consumption expenditures price index (PCE) as a broader and more significant measure, which stands at 2.6%, nearing the Federal Reserve’s 2% target. Excluding shelter costs, the CPI is at 1.9%, suggesting that inflation is under control. However, the inclusion of shelter costs, particularly the controversial "owner’s equivalent rent," complicates the CPI, as it reflects a theoretical measure rather than actual expenditures.
3. The Role of Money Supply and Historical Context
The Federal Reserve’s expansion of the money supply during COVID-19 is cited as a primary cause of inflation. Despite the growth rate slowing, Fisher predicts inflation will drop below 2% as the effect of reduced money supply growth takes hold. Historical context reminds us that deflationary periods, such as the 1930s, are linked to economic depressions, reinforcing the Fed’s aim to maintain moderate inflation.
4. Wage Growth and Tariffs: Debunking Myths
Fisher dismisses wage growth as an inflationary driver, arguing there’s no evidence linking higher wages to inflation. He also downplays the inflationary impact of tariffs, suggesting they affect specific prices rather than the overall money supply. While tariffs may cause price fluctuations, they do not significantly contribute to inflation, as evidenced by the lack of inflationary surge during Trump’s tariffs.
5. Consumer Experience vs. Economic Metrics
While economic indicators suggest inflation is controlled, consumers continue to face high prices, particularly in housing. Fisher acknowledges shelter costs’ impact but argues that core inflation, excluding such variables, is manageable. This discrepancy highlights the gap between technical economic measures and real-world experiences.
6. Conclusion: Optimism for Investors
Fisher concludes that the inflation war is over, advising investors to be bullish. Despite lingering high prices, slowing inflation rates and controlled money supply growth signal economic stability. The message is clear: while prices may remain elevated, the underlying economic trends suggest a positive outlook for investors, encouraging confidence in the market’s future.
