The most dangerous part of the recently released 4.2% headline inflation, the highest since 2008, is the fact that higher labor costs haven’t even kicked in yet, said Scott Rothbort, president of LakeView Asset Management.
Rothbort said that the economy is headed to a situation where we will have much higher inflation but low economic growth, a condition known as stagflation that was prevalent in the 1970s.
“There are two elements to inflation. You’ve got the cost element, and that comes from commodities and input prices, and you’ve got the wage element, and that comes from labor demanding more wages. What we saw in the 1970s was that it became a vicious feedback cycle,” Rothbort told Kitco’s anchor, David Lin.
The end result of this vicious feedback cycle is that small businesses, which on an aggregate level contribute to about 50% of America’s GDP, will be unable to afford paying much higher wages and thus cut staff, increasing unemployment even more.
0:00 – Higher labor costs will come
9:14 – Higher unemployment
18:05 – How high can inflation rise?
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