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I'm gonna start by saying, I am no Economics expert, so please take everything you're reading in this article with a pinch of salt.
I like data, and I like to make sense of data. The point of this article is to raise a hypothesis to create a discussion.
It's no surprise that Inflation is at a local high. We expected this to happen post-covid due to all the stimulus money that was printed to keep the economy functioning. Then we got hit by War in Europe which is causing one of the largest Food Chain supply shortages we have ever seen. The cost of living is skyrocketing, and usually, this leads to a spike in the unemployment rate as Work Force Cost increases dramatically.
So you'd think that we would be experiencing high unemployment rates given that Inflation is at the highest point it has been since 1982, right?
The unemployment rate had already spiked in 2020 and has been in a severe downtrend since then hitting the level it was right before Covid-19 hit. What's interesting to notice here is that the highest points of unemployment rate previously ( 1940s, 1970s and 1980s) all coincide with the inflation highs that affected that particular decade.
Now, for clarities sake - The unemployment rate chart is indeed a lagging indicator. Meaning that the statistics might not accurately reflect the current rates HOWEVER, considering how high inflation is and you would expect to see some form of trend change at the very least. So how do these two charts compare if we plot one against the other?
Well, Surprise surprise. The peak of this level is matching the peak of a DECADE'S WORTH OF INFLATION that happened in the 1970s.
So what does this all mean?
Well, one explanation is that the inflation we are currently experiencing now is artificial. Meaning that it is caused by one or a small number of factors that are leading to an artificial hike in inflation . What could this cause be? There could be lots of theories to that question.
My take? The food supply chain.
Ever since the war between Russia/Ukraine has hit, the food supply has been hit hard. This is what is causing the cost of living in certain goods to boom, creating artificial inflation that is not entirely reflected in the WHOLE economy but affecting the whole economy nonetheless.
OK, BUT WHAT DOES THIS ALL MEAN?!
My hypothesis is that although it is never a good sign that some factors are single-handedly causing artificial inflation, it also means that this inflation could go away as soon as the shortage issue is fixed. We might NOT be heading into a decade's worth of Inflation as we have previously, simply because the inflation is not caused by monetary and economic inflation, but rather by chain issues caused by the macroeconomic level.
The problem? If these issues are not fixed soon enough, then we might be at risk of entering that decade of inflation as these rates and hikes would lead us into a recession. There is hope, but time is unfortunately not on our side.
As I said, I am no expert, this is NOT financial advice, this is just me trying to make sense of some data! Curious to hear your thoughts and discussions and please enlighten me if I am missing something or getting something completely wrong :)
Thank you for reading!
Stay strong and HODL!
