BlackRock: It's Way Too Early To Worry About Inflation

There's no shortage of people who are freaking out about inflation, thanks to the Fed's ultra-easy monetary policy.

However, convincing evidence of inflation has yet to appear in the economic data.

Russ Koesterich, Chief Investment Strategist at BlackRock, has a new post on the iShares blog titled When to Worry About Inflation.

He says concerns of inflation are premature for at least two reasons (verbatim):

1.There is no wage inflation. Overall wage growth in the United States remains sluggish. The reason: The labor market is healing at an agonizingly slow pace. U-6, a broad measure of unemployment that also includes part-time workers looking for full-time work, is still indicating that about one in six American workers are unemployed or underemployed. Until this changes, raises will be hard to come by, and without wage inflation, overall inflation is likely to remain muted.

2.Bank lending is only starting to pick up. While the Fed has been busy in recent years with the modern equivalent of a printing press, the newly created money has been mostly sitting on bank balance sheets. Without much bank lending, growth in the money supply has been modest, lowering the risk of inflation. Though bank lending is starting to rise again, at least to businesses, it will take time before credit creation leads to any meaningful pickup in inflation.

Koesterich, however, says that inflation is something we may have to worry about in 2014 and beyond.

Yea, I just got back from a week and a half in VA and the price of gas (in paper) in CA went up close to $0.50 in that period. The country is awash in reserves, and capacity to refine has to be well over falling consumption (we’re even exporting refined product now) and there isn’t any inflation???

And this spiel about “no inflation until wage pressure manifests” is bullshit. If there was an expanding force of well educated and skilled fabrication and manufacturing blue collar workers, maybe you’d see it, but they aren’t coming until the regulatory costs of building a structure that utilizes energy and heat to cast, pound and mill things drops to one commensurate with places like China where you can do same and emit all of the byproducts essentially without any treatment or after-processing.

I was looking at “Made in China” on the bottom of a coffee mug today. Something that doesn’t take a hell of a lot in the way of knowledge on the employee side to produce, but which the structure to make same, here, would take about 2 years to build, cost $200,000+ for the building permit, Lord knows how much for some lackeys business permit, and an additional half to million dollars to design and build out all the environmental crap (storm water, excess traffic fees, air handling and cleaning fees, NOx emmission credits purchase or fees if it’s gas fired, ad nauseum).

So there you are, needing to sell something on the line of 200,000 $10 coffee mugs just to break even on expenses, not even considering the in-production overhead costs (wages, health, OASHA compliance), and because of “Free Trade Agreements” agreed to by dog excrement swilling politicians your competitor merely faxes or emails an order for 500,000 of the same mugs to some schmuck in Zangschwing province China at Peoples Reeducation Ceramic Facility #324534 for $0.65/apiece, sells them for $8.99 and you’re screwed.

To add insult to injury, unless you greased the right palms for some sort of tax break here and are a large company, you have an additional 25%+ tax burden over PRCF #324534 costs, but on the opposite end of it the government takes 0 risk on the downside of the equation so when you go bust they say “Oh, to bad, time to think up something else that might make a buck utilizing YOUR capital with YOU taking the RISK, and don’t forget after going through our cornholing all over again to send us our cut if you heaven forbid actually do make money”...

convincing evidence of inflation has yet to appear in the economic data

What? This person is either educated way beyond his intelligence or is frantically trying to cover the facts like a cat in the litter box. A simple trip to the grocery store provides all the evidence anyone should need to see - everything we buy has gone up dramatically in the past year and continues to rise. We are now resigned to $3.00 + gas and it continues to go up despite some short term drops to keep the frog in the pot. These two things impact us normal folks a whole lot more than whatever is in the "economic data".

ut on the opposite end of it the government takes 0 risk on the downside of the equation so when you go bust they say “Oh, to bad, time to think up something else that might make a buck utilizing YOUR capital with YOU taking the RISK, and don’t forget after going through our cornholing all over again to send us our cut if you heaven forbid actually do make money

But at least the government has set up a healthcare exchange so you purchase the mandated healthcare coverage you won't be able to afford.

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