High inflation may be here to stay. US authorities have abandoned the word “transitory” to describe the spike in the cost of goods and services over the past few months. 

Financial Coach, Founder and CEO of Profit Jumpstarter, Keisha Bailey.

According to Financial Coach, Founder and CEO of Profit Jumpstarter, Keisha Bailey, inflation rates across the world are suggesting that consumers’ spending powers will continue to diminish in the coming months.

Citing recent data out of the United States, Bailey told Kalilah Reynolds on Taking Stock that the upward trend globally remains a cause for concern.

Inflation rose almost 7% in the US in November, the highest it’s been in 40 years. The impact is being felt more amongst those on the lowest incomes with the least room to manage.

The situation, Bailey said, has led to the Chairman of the Federal Reserve in the US to call for the removal of the term ‘transitory inflation’ from conversations around the issue.

In the local context, prices rose almost 8% in Jamaica for the same period up to November, with the Statistical Institute of Jamaica (STATIN) noting that the figure was influenced mainly by the 7.9% jump in prices for ‘Food and Non-Alcoholic Beverages’, 14% rise in ‘Transport’ prices and the 8% increase in rates for ‘Housing, Water, Electricity, Gas and Other Fuels’. 

The November rate is a fall from the 8.5% recorded in October, but it’s still high compared to previous data.

“Remember transitory inflation was a big thing earlier this year, because the expectation was that inflation was going to pass, but the Fed Chairman is now saying well let’s drop the word transitory and that means inflation may be here to stay,” said Bailey.

Bailey reasoned that companies that cannot pass on the inflation to their customers are going to get hurt by the sustained high prices.

She said while tech companies have really been the biggest winners for 2021 as the world adapted to live with the pandemic, they may start to feel some of the effects next year.

“There’s a lot of talk around tech companies and what inflation will do to them. The thinking is that higher inflation could potentially hurt the tech companies…they may come under a little pressure next year but we’ll have to wait and see because investors love tech companies and they may push the market higher but we wait and see how that pans out in 2022.”

Bailey said she’s interested to see how inflation will play out in the market in the coming year, and has advised other investors to be vigilant to be able to make quick decisions with their investments in order to take advantage of what will take place in the space.

Financial and business experts continue to advise that understanding why the inflation rates have risen so quickly can help clarify how long the global urge might last. They argue that such knowledge could also influence what, if anything, policymakers should do about it. 

The Bank of Jamaica (BOJ) has been working to contain inflation locally by increasing interest rates and taking deliberate actions to contain Jamaican dollar liquidity and movements in the foreign exchange market.

However, the recent acceleration in inflation rates has been said to be linked to external factors, making the situation fundamentally different from other inflationary periods that were more closely tied to the regular business cycle. 

Those factors being linked to the spike include: continuing disruptions in global supply chains amid the COVID-19 pandemic; turmoil in the labor markets; the fact that today’s prices are being measured against 2020 prices which were badly affected by lockdowns and strong consumer demand with the phased reopening of economies.

But the Fed’s acceptance that high inflation is here to stay may be a vindication for policy makers at the BOJ who have been criticised for raising interest rates in response to inflation. Critics said the measure would not work because the inflation currently being experienced is transitory. 

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