Short-term bridge financing with the express goal of filling the income void left by macro lockdown initiatives was both appropriate and effective.
While personal income and aggregate private sector wage income incurred a historic plunge, stimulus and enhanced benefit payments totaling $4.3T (SAAR) in April/May, successfully filled the gap.
However, absent a further extension of that bridge as enhanced U.I benefits expire, PPP funds become exhausted and large-scale forbearance programs experience a rolling expiry, the COVID Cliff risks an inauspicious hand-off to series of fiscal/Income cliffs.
We’ve detailed the risks surrounding those dynamics recurrently.
Anyhow, the thing is … and this should be a true macro revelation …. Economies are in the business of making tangible things.
If - in the midst of a simultaneous supply and demand shock – you give people a bunch of money to buy things while no one is producing those things, it will (eventually) show up in prices.
And if production is suppressed at the same time that the dollar is falling, commodity input prices are rising, health/safety regimes are more expensive, supply chains remain pressured and deglobalization is ascendant, then you risk some measure of inflationary/stagflationary shock.
That scenario is a prospective intermediate-term risk even while economies struggle to absorb the largest, compressed demand shock (deflationary) in modern history.
Meanwhile, the reality of right now for most households remains one of real but somewhat stealth stagflation. That is, while Headline Inflation remains at/near cycle lows, price growth in the stuff people actually have to buy like food and medical care have effectively gone vertical (chart below).
We’ll leave the contextualization there other than to note:
- The rebound in Energy and Gas prices (oil = +28% M/M, Gas = +11.2% M/M) were the primary support to the sequential gain in the Headline.
- Shelter costs showed a fourth month of notable acceleration. Whether that represents actual price deceleration, owner’s expectations around the ability to actually collect rent or an amorphous mix of real-perceived conditions around the broader macroeconomy remains somewhat of an open question.
