Wednesdays with Wenzel: Nailing the inflation prediction

The ball is in the Fed's court

This is a semi regular Wednesday column where we examine the work of the late, great Austrian School of Economics and Rothbardian influenced Robert Wenzel. The content for this column comes from his books, his daily market alerts, and the content of his websites, Economic Policy Journal and Target Liberty.

In the video below, which Robert Wenzel dropped in April, he discusses the three reasons that inflation is going to run very hot this year. His analysis has proven to be fantastically accurate.

• Base inflation - this is an after effect of the price drops companies attempted during the lockdown period. This effect could last up to 12 months depending on the sector and how badly it was impacted by lockdowns

• Bottleneck inflation - having inventory is great until you can’t ship it anywhere. Further exacerbating this type of inflation is the incentives for low skilled labor to stay at home

• Monetary inflation - the irresponsible money printing continues in 2021, though not at nearly the level of 2020

RW then discusses a fourth factor that we might start seeing in 2022. This is very important to keep an eye on.

Finally, the real question is how will the Fed react? Robert’s estimate of what the Fed would have to do to short term rates in order to quell the inflation does not appear to be in the realm of what realistically might happen. So the answer is, the policy mistake is happening now.

If you’ve never watched this video, I highly recommend it.

Have a great Wednesday, and log4j willing, I’ll be chatting with you again soon.