While I define inflation as a relationship between the money supply and the production of goods and services, the common trait of it is rising prices. I think that when we see salaries beginning to rise then we need to suspect that prices of the related goods and services will follow. So very recently, Wal-Mart caved to worker pressure to raise the minimum wage of its masses. It said it did this because they found that if they paid lower wages then turnover was much higher and turnover is expensive for the company. So it was actually a cost saving initiative to raise wages above the federal minimum.
And true to the herding nature of man, this leadership move by a major player immediately forced the hands of other low wage retailers to do the same. "Bahhh!!", said the sheeple, "we don't want to lead but we don't want to get left behind...". In addition, Wal-Mart is fixing a few perceived problems with its shifts that workers have to work and doing other things that attract and retain workers. While I would not exactly call that a "wage war", I would call it a 10% raise this year for a lot of people and then another 10% in 2016. In Texas the minimum wage was $7.25 and so the 2015 jump to $9 is more like a 24% bump in 2015.
Of course what will happen next is that Wal-Mart, which is the only place that its employees can afford to shop, will now have to raise prices in order to make up for it. So this is really something of a PR stunt but it should cause the rabble to put down their pitchforks for the time being. But if the workers get wise they will just be asking for more and more pay in order to stay ahead of this "cost push" inflation and that is where it will eventually become a problem.
Jim Sinclair has been going on for quite some time about the coming "cost push inflation". Others have been talking about deflation. Some things have clearly deflated like oil, gold and silver. But other things are starting to catch a bid like natural gas. So it is difficult to say what will be a beneficiary of a bout of inflation. Regardless, deflationists need to be aware of three things:
1) deflation never lasts forever! the natural order of fake money is for the con men to print or conjure up more of it. Also, the ultimate inflation or hyperinflation is where people just lose confidence in paper even if government is not printing more. All paper money eventually goes worthless.
2) deflation can be selective. I expect stocks and house prices and anything else normally bought on credit to suffer but if you think food providers are going to lower their prices much, think again.
3) inflation has been kept in check for the past 20 years by a collapse in the velocity of money as you can see from the chart below. That chart says that 5 waves down have transpired or nearly so. The most recent wave down began in Q3 2010. Once it bottoms we have to expect, at the very least, 3 small waves back up to the level of the prior 4th. In other words, I expect the velocity of money to pick up soon and this is going to reverse itself from being a deflationary tail wind to an inflationary one. I don't know that this is the major cause of inflation or deflation (until it becomes a crackup boom, that is) but it should not be ignored by deflationists. Perhaps these salary increases are the tip of that iceberg. Note that gold started dumping in 2011 just about the same time that wave 5 down began on the velo m2 chart.
No comments:
Post a Comment