Speaker Profile: Beaulieu, ITR on “The Inflation Boogie Man”

While the CPI inflation rate is relatively tame, businesses are clearly facing inflationary pressures every day. Those pricing issues are picked up via the Producer Price Indexes. So far, despite the magnitude of input cost increases (including labor), the CPI is not indicating there has been a significant pass-through of these higher costs. That could become a serious issue for individual businesses. Be careful about your profit margins in this difficult environment. Additionally, on a more macro level, be mindful of the cumulative effect this margin squeeze could have on stock prices (further widening of the gap between high share prices and a tepid rise, at best, in profitability).

The next chart shows the U.S. Government 10-Year Bond Yield through the same period as in the Core Inflation chart above. This long-term yield is a function of the marketplace, versus the short-term interest rates the Fed controls/influences. So far, the 10-Year Yield has returned to its pre-COVID level and nothing more than that. We are not yet seeing any inflation concerns from this trend. Additionally, the yield curve is favorable (positive) and is also indicative of low inflation expectations.

Don’t allow your own experiences with escalating cost inputs to lead you to conclude that an interest rate rise is imminent and the economic recovery from the pandemic is drawing to a close. Stay aggressive in securing your supply chain and think about putting through another round of price increases. The consumer is flush with cash; they can absorb it if you can justify it. Now is the time to be laser-focused on your margins.

Speaker Bio

Dr. Alan Beaulieu is president and principal of ITR Economics, a highly respected research and consulting firm based in Manchester, N.H. One of the country’s most sought-after economists, Beaulieu has provided workshops and economic analysis seminars to thousands of business executives all over the world for the last 30 years. He is the chief economist for numerous U.S. and international trade associations, and has been quoted in the Wall Street Journal, New York Times, USA Today, the Associated Press, CBS Radio, CNN Radio, Sirius talk radio, and numerous other media outlets.