Will the U.S. CPI point to a new high "inflation spiral" in February, will it add another fire?

　　Fueled by supply chain bottlenecks and buoyant demand, U.S. price pressures have spread from goods and services to nearly the entire economy.

For example, rents rose in January at the highest level since the early 2000s, and escalating tensions in Ukraine have kept energy prices soaring.

Fitch said this week that it expects U.S. inflation to peak at 8 percent in the first quarter.

At the same time, a tight job market could be a potential driver of inflation.

Employers have boosted pay while competing for scarce workers.

The data shows that hourly wage growth has remained above 5% for five consecutive months, more than double the pre-pandemic average.

Fed Chairman Jerome Powell said last month that strong wage growth was a factor behind the central bank's move away from easy monetary policy.

Labour market continues to be tight

　　Economists have kept a close eye on consumer and business inflation expectations since the rapid price increases in the 1970s.

Steady rising prices can create a wage-price inflation spiral: workers demand higher wages to make up for rising prices, forcing companies to raise prices to make up for higher employment costs.

　　Data released by the U.S. Department of Labor on Wednesday showed that labor vacancies in the U.S. labor market reached 11.263 million in January, and the layoff rate remained at a historically low level.

"In many ways, this is a historic labor market tightening," Fed Chairman Jerome Powell said at a news conference after his January rate meeting, "However, I think raising interest rates without hurting the labor market There's still a little space."

　　Data, including the latest nonfarm payrolls report, showed that the U.S. labor market has successfully weathered the impact of the Omikon outbreak.

The ISM survey of purchasing managers released last week showed a persistent labor gap.

Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee, said: "The vast majority of businesses say their companies are increasing or trying to increase headcount as 90 percent of the comments are recruitment-focused."

　　Mikael Olai Milhoj, chief macro analyst at Danske Bank in Denmark, said in an interview with a reporter from China Business News that the Fed has kept the long-term unemployment rate below 4%, which is now actually below this level.

From the perspective of labor demand, the long-term damage to the job market from the epidemic is also obvious: corporate demand is high, and the return of job seekers is somewhat tepid.

　　Businesses are facing more early retirements and more workers quitting than usual.

The Fed's Beige Book noted that companies continue to attract job seekers, especially workers in low-wage positions, by increasing pay and introducing workplace flexibility.

Many workers are reaping the most lucrative wage increases in years as companies compete for limited workforce resources.

　　Milhoy told reporters that there is still some way to go to achieve a balance between demand and supply behind the U.S. job market.

For example, it's hard to imagine early retirees starting to voluntarily return to the workforce.

To do so, at least for them, needs to be very attractive, which in itself is a sign of inflation.

He believes that when the labor market gets back on track will ultimately determine the future path of prices and interest rates.

Inflation Spiral Potential Risk

　　With inflation rising to a 40-year high, the current situation in the United States has many similarities to that at the time. For example, loose monetary policy and high government fiscal spending have pushed up prices and household incomes gradually. The Federal Reserve is forced to raise interest rates to curb inflation.

　　The Labor Department data showed that the employment cost index, the broadest measure of labor costs, rose 4.0% in the fourth quarter of last year from a year earlier, the largest increase since 2001.

The tense supply and demand relationship has given employees more leverage to demand higher wages, and American labor unions have begun to "challenge" enterprises. Last month, the American Truckers Union hoped that four large American retailers including Lowe's, Best Buy, and TJX would investigate their supply. Whether companies in the chain are underpaying workers, expect retailers to use their relationships with suppliers to offer greater protection to drivers.

　　There has also been a spectacular "wave of departures" behind the rise in wages.

According to the Labor Department, 47.4 million workers across the U.S. changed or left their jobs last year.

Goldman economist Joseph Briggs said in a note: "The shift in labor flows includes two distinct but interrelated trends: millions of workers have left the labor force, and millions more Quitting jobs for better, higher-earning opportunities. These trends have pushed wage growth to a level that is increasingly raising concerns about the outlook for inflation.”

　　Businesses have been gradually raising prices of goods and services due to rising production costs, including wages.

The first financial reporter noticed that many consumer goods companies, including Procter & Gamble and Coca-Cola, announced follow-up price increases in this earnings season, and companies will take more proactive measures to protect profit margins.

So far, consumers appear to be accepting the price hike.

Executives such as McDonald's say the higher prices haven't driven away customers.

However, the continuation of this situation remains to be seen.

Coca-Cola CEO James Quincey said on a Four Seasons conference call that consumers were more able to afford higher prices as the government injected stimulus money into the economy during the pandemic.

And, when costs rise across the board, people are less likely to be surprised by the rise in prices of individual items.

"But everything ends up going into another phase where when incomes are really squeezed, the actual consumption situation is much more difficult," he said.

　　With the escalation of the situation in Ukraine, the surge in commodity prices has brought similar concerns to the outside world, and companies are expected to transmit cost pressure downstream.

Since CPI is currently higher than wage growth, the purchasing power of American households is corroded, and employees will demand higher incomes to offset price pressures. If productivity cannot rise accordingly, a wage-inflation spiral will unfold.

In the 1980s, then-Fed Chairman Volcker finally raised interest rates sharply to control inflation, which eventually triggered dramatic economic volatility.

　　Milhoy told the First Financial Reporter that in view of the current price pressure, the Fed must tighten monetary policy to achieve the purpose of suppressing inflation expectations, and policy strength is the key.

The impact of monetary policy on the supply chain is relatively limited, so controlling the demand side becomes the goal.

At present, consumer demand is too high. The main purpose of raising interest rates is to tighten the financial environment and moderate the growth of demand, so as to achieve the purpose of reducing inflationary pressures.