Most economic variables of western economies are reaching record highs in at least a decade. However, rising inflation makes information blurry or even meaningless.

“Colorful lights in bokeh against a black background” by Alice Wu on Unsplash

At least since the 2008 financial crisis, the top line performance of economies and companies had been assumed to be real because inflation had been close to zero. Real was true both in terms of economics and colloquially. People could depend on the figures because inflation was not blurring the results.

However, the tide is changing based on individual accounts of businesses even though government statistics are slow to reflect it. This makes all government and private figures difficult to digest and the markets will need to adjust.

As an example let’s take a world without inflation. If people are told that they are receiving a 10% wage raise, they have a reason to be happy and celebrate. However, in a world where inflation is a problem but its value is uncertain, a 10% wage rise is meaningless. A 5% inflation still implies people’s financial situation improves after the wage rise and they should celebrate, but a 20% inflation means people are worse off and the wage rise just lessens the pain. We just don’t know which inflationary world we are in.

Photo by sergio souza on Unsplash

Non-aggregate individual accounts of people and companies are painting an inflationary picture.

Anything close to 3 percent is likely dangerous territory for central banks. I would argue that given the evidence below, government data have plenty of headroom to climb in order to reflect the experiences of private businesses.

Data pointing to low or target inflationary environment (yoy):

Data pointing to high or unexpected inflationary environment (yoy):

Earnings commentary with data pointing to high or unexpected inflationary environment:

The only data pointing to normal, expected inflation are based on lagging government data or structurally CPI-challenged countries such as Japan and Italy. Slower inflation data are perhaps calming the market now so its response remains relatively subdued. As soon as private business data starts leaking into government numbers significantly, I would expect a meaningful market response similar to that in February.


Author website:

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store