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First we were told expanding the money supply by 25% in 1 year wouldn’t cause any inflation…

Then we were told that the inflation we saw was a momentary spike…

CNN bravely told everyone that inflation is good for the average man, and bad for the rich…

Then we were told it was merely transitory…

And 3 years on from that initial deception, inflation is once again ticking upwards, rising by 0.4% last month alone, which is 4.9% when annualised.

We are now being told that services inflation is sticky, and it isn’t going to fall anytime soon.

And analysts and pundits are now sitting down to delve into whether or not the stock market will thrive under high inflation.

It should be clear to everyone right now that inflation has been a problem for the last 3 years, and it’s going to continue to be a problem for years further.

The Federal Reserve has given up trying to fight it, instead content to watch average prices rise ever higher, while refusing to raise rates further, and whilst also refusing to enact Quantitative Tightening to any meaningful degree.

And despite what the Financial Times would have you believe, this will negatively impact the stock market, because it will negatively impact consumers, and thus the businesses which seek to profit off of those consumers.

US retail sales soared as inflation initially took hold, indicating the consumers ability to tolerate higher prices whilst still spending, but that seems to have stopped.

US retail sales rose from $520 Billion when Covid lockdowns commenced up to $700 Billion by the end of 2022.

But over the entirety of 2023, and now the first 3 months of 2024, US retail sales have remained almost entirely stagnant, remaining steady at $700 Billion, despite average prices rising by 4.5% since then.

Frankly, we should have seen sales rise to $731 Billion if the consumer were able to keep up, but that is not the case.

This is as credit card debt has continued to soar from $750 Billion to $1.15 Trillion, and housing debt has been driven up from $10 Trillion to $12.6 Trillion.

Interest rates are higher, meaning the cost of this debt is greater, and the size of the debt burden is higher than ever right now as well.

It was always simply a matter of time…

How long could the consumer keep up with inflation? How long until people could no longer afford to pay these higher prices? How long until all their credit cards and HELOCs were to be maxed out?

It seems over the last 6-12 months we have arrived at that point, and without an increase in the wealth of the average person, consumer spending simply will not be able to rise any more.

As this lagging effect starts to spread across the economy, we will see this impact nearly every publicly traded company, in the form of poor earnings reports and poor forecasts as well.

It is now incredibly likely that this impacts the stock markets, as at the end of the day, all of these charts and numbers have to eventually be rooted in some kind of reality.

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