Despite high unemployment, inflation is still going to hit the U.S. soon, according to Deutsche Bank’s Joe LaVorgna.
It’s not because of food or money printing, however. Rather, it’s about a dramatic collapse in rental vacancies.
From Joe LaVorgna:
With the residential rental vacancy rate plunging 1.3% over the past year to its lowest level since Q1 2003, we expect rents, which have already begun to turn higher, to continue to accelerate…These trends have since reversed, so rents should continue to rise, adding almost one percentage point to core CPI this year.
So, yes, regardless of still high unemployment, we’re going to see an increase in inflation. But LaVorgna also sees a decline in the unemployment rate in the U.S., to 7.8% by the end of 2011. That might not seem like a big deal for inflation, as it’s no where close to the unemployment levels we saw prior to the recession. But with a new NAIRU, or non-accelerating inflation rate of unemployment, it may be real inflation threat.
Structural unemployment may actually be much higher in the U.S. than it used to be in the wake of the recession, with many construction workers who used to build homes permanently unemployed. That could raise the NAIRU, and make LaVorgna’s 7.8% call pretty close to what Societe Generale project is the new NAIRU.
That means the U.S. economy might be close to its new all-cylinders unemployment level by the end of 2011. More people employed, more people spending, more reason to get worried about inflation.
From Deutsche Bank:
Photo: Deutsche Bank