Everyone sees the inflationary spike post-Covid (assuming that day arrives) and I think pretty much everyone assumed that it was likely to occur. However, the key phrase became "transitory" versus "permanent." I have been and am in the "transitory" camp, but have noted one flaw in my analysis.
Basically, I viewed a post-Covid world as one which returned to a pre-Covid world with significant tech improvements. These improvements are generally deflationary - greater communication, less travel and better technology (like docusigning etc). I recognized that there would be some inflationary impacts as some distancing measures and productivity losses held.
However, my biggest blindspot was the reluctance of workers to simply return back to work. I was skeptical that subsidy checks would cause people to be reluctant to go back to work. Here I was wrong. In the 80s, I saw a strangely similar pattern. When realtors made six figure incomes in the real estate boom in the 80s, they were reluctant to work for anything less when the boom busted. Forever more, they saw themselves as six figure people.
Now a similar pattern seems to be showing up where people have received funds for no work and shifted a self-image to a much higher income to return to work. In response, businesses have simply stepped up wages and passed those on to customers - who assume these prices are temporary. I still believe that these prices are temporary and that higher wages will only drive higher productivity and a loss of some services jobs. If a wage push inflation is sustainable, bond and stock markets will be dislocated. In japan, there have been more jobs than workers for years, but inflation has not been sustainable.
