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Thoughts on inflation’s rapid march

January 13, 2022, 11:57 AM UTC

Good morning.

Inflation was the unavoidable story of the day yesterday, with the U.S. reporting consumer prices in December up 7% from a year earlier. That’s the fastest increase since 1982. And here’s a fun fact to think about: mortgage rates in 1982 averaged 16%, compared to just over 3% today. That’s because Mr. Market apparently thinks current high inflation won’t last.

But price increases have certainly become widespread throughout the economy—with new vehicle prices up 11.8%, the gasoline powering those vehicles up 58%, the cost of dining out up 7-8%, meat prices up 15-20%, and so on. I wrote on Tuesday about the risk of inflation leading to more aggressive Fed action leading to an end to the economic party, and asked CEO Daily readers to send in their thoughts. Genpact CEO Tiger Tyagarajan offered the following:

Inflation is as real as I have ever seen it in my 35-year career. It is global and seems to be pervasive across industry sectors and skill sets. I am seeing it in every client conversation at the C suite level, and it does have a cascading effect. And finally, it has an element of expectation, as we all know. I worry that the expectation of inflation may itself drive inflation.”

That’s the key lesson I learned from my macroeconomics professor—former Fed chief Janet Yellen—when I was in graduate school at the London School of Economics during the last great inflationary surge. Inflation, at the end of the day, is a psychological phenomenon. Right now, the market is telling us that price increases haven’t yet fully infected people’s thinking about the future. But once they do, watch out.

More news below.

Alan Murray
@alansmurray

alan.murray@fortune.com

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This edition of CEO Daily was edited by David Meyer.

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