Low Inflation with Low Unemployment?

COMMENT: Good day Martin;
Regarding: Market Talk- April 11, 2018
On the Fed minutes, you stated: “Interesting as they admit they are confused as to why unemployment is so low yet there is still no inflation.
I will accept the challenge and take a stab at it.

As you have stated many times trade is summed in dollars, not amount of goods. The USD has lost 7.0% in 2017 while imports have increased roughly 9.0% y/y in dollars. China, Mexico, and Canada make up 45% of U.S. imports, but all three countries’ currencies have been in lockstep weakening while other EM currencies have strengthened. Retail Sales increases y/y are up 4% since 2011 which may be due to a strengthening labor market but not enough to raise margins on the products sold.
Did I pass the test? Please grade.
RH

REPLY: I give you an A.  Everything is interlinked and we have to look at the full-spectrum. Typically, inflation unfolds when there is CONFIDENCE in the future. Hyperinflation takes place when CONFIDENCE in government collapses. We are dead center. There is no real CONFIDENCE in the future so people are spending less and saving more (hoarding) so there is no mad rush to go buy something today for fear it will rise in price tomorrow. As long as people remain unsure about the future, they will also be in the saving mode.

Add to this human tendency concerning the impact of taxes. What government refuses to look at is the bottom line. The more they raise taxes, the less disposable income the individual has in every class. Even those who are in the lower class where they do not see a tax increase are still impacted because wages will not rise when employers have to pay more in taxes and products will rise in price and tax increases are passed along. Therefore, if you earn $100 and take home $80 before a tax hike and now you take home $70, your disposable income is reduced and inflation is suppressed.

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