In hisDaily Market Notes report to investors, while commenting on the Biden administration feeling the inflation heat, Louis Navellier wrote:
Q2 2021 hedge fund letters, conferences and more
Biden Administration Feeling The Inflation Heat
The Biden Administration is clearly now feeling the inflation heat. This was evident in National Security Advisor Jake Sullivan indicating that OPEC should increase production.
There is a greater likelihood OPEC will not increase production than it will. Saudi Arabia is still smarting from the canceled arms sale and soon to be released 9/11 information. The upside is that domestic energy produces will remain profitable, but the bad news is that a reliable check in inflation — energy prices are — will increase unabated.
Although there are 10.1 million new jobs being offered by employers, many of these jobs are for skilled positions, so look for businesses to continue to make investments in automation to make up for a shortage of skilled workers. The biggest winners will be the service sector, which can most easily avail itself to productivity gains, and the tech sector which provides the tools for more automation.
This is the third straight week that unemployment claims have been below 400,000, so despite the Covid-19 Delta variant, it appears that there is a gradual improvement on the labor front. Still, the preponderance of more low-wage jobs being filled is creating a drag on average hourly wages, which is a headwind to GDP growth.
Commodity Inflation
Commodity inflation is a worldwide problem. As an example, China’s Natural Bureau of Statistics reported that producer prices rose 0.5% in July, up from 0.3% in June. In the past 12 months, producer prices surged 9% in July compared to the same month a year ago. Wholesale inflation in China is now running at the fastest annual pace since September 2008.
Speaking of inflation, the Labor Department on Wednesday announced that its Consumer Price Index (CPI) rose 0.5% in July and has now risen 5.4% in the past 12 months, which was in line with most economists’ expectations. It appears that the Fed is trying to engineer a gradual slowdown in overall economic growth that might squelch inflation fears.
I am still in the camp that the Fed will not address tapering until its December FOMC meeting, since Fed Chairman Powell is up for renewal in early 2022 and the Biden Administration is still proposing spending trillions of dollars in the wake of its $1 trillion bipartisan infrastructure bill.
Due to all the proposed spending, which is much less likely to achieve bipartisan support, if the Fed started tapering just before the federal budget deficit soared, then it could complicate future Treasury auctions. As a result, I expect that the Fed will remain accommodative, cite the Covid-19 Delta variant as a risk to the economy, and continue to kick any tapering decision until its December FOMC meeting.
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