Inflation, Inventories, And The Importance Of Forward Looking Indicators

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Why are so many getting the inflation conversation wrong? How can I say this at this time? After all, the CPI, PPI, and CPE are through the roof. The reason is because that is what the forward looking indicators are telling us.

In this video I discuss how so many look at inflation and unemployment, not realizing they are trailing indicators. For more than 6 months I warned about the inventory problem that was building. Today, Target lays a bombshell that they are having to readjust due to the fact they are going to have to discount prices to get rid of excess inventory.

Suddenly inflationary turns deflationary. This is something that is going to spread throughout the economy. Supply chains are starting to look the oppsite of what they did for 2020 and much of 2021.


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and that excess inventory is mainly due to the fact that the companies became oversaturated with merchandise or, on the contrary, that they have not been able to sell all the stored merchandise and cannot acquire more without first leaving the oldest in existence.

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Summary:
In this video, Task discusses inflation, inventories, and the transitory nature of inflation. He talks about how the Federal Reserve's stance on inflation has shifted, leading to potential surprises for retailers caught off guard with excess inventory. Task highlights the impact of rising input costs on manufacturers and the economy, emphasizing the importance of forward-looking indicators like inventories over lagging indicators such as unemployment. He delves into the implications of current economic trends, predicting a looming recession, higher unemployment, and the possibility of deflation. Task also touches on the automotive industry, real estate, global economic trends, and the interconnectedness of these factors in shaping the economic landscape.

Detailed Article:
Task starts by addressing the Federal Reserve's handling of inflation as they initially labeled it transitory but later appeared influenced by external pressures, leading to a potential misjudgment. He notes the risk posed to retailers with excess inventory as a result of mismanaged demand and the subsequent need to slash prices to move stock. Task emphasizes the significance of inventory levels and supply chain disruptions as early indicators of economic health, suggesting a potential downturn based on current trends.

He explains how wage growth has failed to keep up with inflation, resulting in a decrease in real income for consumers. Task highlights the disparity between input costs and output pricing, putting manufacturers under pressure to maintain margins and potentially leading to layoffs. He warns against relying on backward-looking indicators like inflation and unemployment rates, stressing the importance of forward-looking metrics for economic forecasting.

Task provides insights into the automotive industry, where despite increased production, sales have plummeted, indicating demand destruction. He mentions the decrease in used car prices as a sign of weakening demand, unrelated to Fed interest rate policies but rather a result of supply and demand disruptions caused by the global economic shutdown.

The discussion expands to broader economic forecasts, with Task expressing concerns about a looming recession, rising unemployment, and the shift from inflation to disinflation and potentially deflation. He cautions against the misconception that deflation is preferable, outlining the detrimental impact on businesses, job security, and overall economic stability.

Task also touches on real estate market trends, noting a slowdown due to affordability issues and its vulnerability to worsened conditions amid rising unemployment. He concludes by drawing parallels between global economic indicators, such as China's slowing GDP growth, and the potential ripple effects across the global economy, hinting at a possible negative GDP print for the EU.

In summary, Task's analysis provides a comprehensive overview of current economic challenges, emphasizing the importance of proactive assessment using forward-looking indicators to navigate the evolving economic landscape effectively.

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