Is Inflation Here for the Long Run?

Inflation is posing a growing issue for American households, with 61 percent of U.S. adults in a recent Gallup poll claiming they are experiencing financial hardship due to inflation, an increase from 56 percent in previous surveys. The hardship from inflation has risen despite a fall in inflation rates. The year-on-year increase in the consumer price index peaked at 9.1 percent nearly a year ago; however, ongoing inflation is still impacting real incomes, with monthly price increases compounding over time.

A significant factor exacerbating the situation is the psychological tax of enduring inflationary periods, as individuals tire of seeing the constant rise in household bills. The credibility of the Federal Reserve has also been undermined by repeated assertions that inflation would be temporary, or due to short-term supply-chain issues.

Predictions suggest a prolonged period of inflation, which will remain significantly above pre-pandemic levels.

Factors contributing to inflationary pressure include the process of re-establishing manufacturing and distancing from China, increased risk of international conflict, and policy shifts favoring diversity, inclusion, and equity. The government's mandated transition towards cleaner energy is also expected to drive prices up.

This inflationary pressure might not result in a 9 percent inflation rate but could potentially push us towards a three or four percent inflation rate. To achieve the Fed's target of two percent inflation, restrictive policy rates will likely have to remain in place for an extended period, even during economic downturns. The alternative is risking an increase in inflation through easing to stimulate the economy, leading to either higher inflation or increased interest rates for longer periods.

Contrarily, financial markets seem to be underestimating this issue. Both bonds and stocks appear to anticipate only minor impacts on corporate profits that wouldn't lead to a wave of debt defaults or significantly lower corporate earnings. The bond and derivatives markets appear to be expecting the Fed to cut rates even during a mild recession or a return to a two percent inflation rate within months. Given the prevailing trends supporting higher inflation, these outcomes seem unlikely.

The perception among U.S. households appears to be more aligned with reality than Wall Street's.

Recent reports indicate that consumer expectations for inflation over the long term are increasing. The May preliminary reading from the University of Michigan survey of consumer sentiment showed consumer expectations for inflation over the next five to ten years moved to 3.2 percent, exceeding its previous range of 2.9 to 3.1 percent.

Compounding these issues are President Biden's nominations to the Federal Reserve, who are seen as unlikely to effectively address inflation. The nominees are perceived to be more focused on climate change and racial equity in the labor market rather than growth and price stability.

Bloomberg Opinion columnist, Allison Schrager, expresses concern over these developments. Schrager argues that monetary policy is at a crucial stage and the decisions made by the Federal Open Market Committee in the next few years will be pivotal in controlling inflation, fostering economic growth, and guiding financial markets.

Schrager criticizes President Biden's pick for the Fed’s Board of Governors, Adriana Kugler, as she is a labor economist and the board lacks anyone with financial macro expertise. Despite this criticism, Schrager does acknowledge that there were other capable economists from diverse backgrounds who could fulfill the necessary roles more effectively, such as Janice Eberly or Ricardo Caballero. The author concludes by suggesting that with the increasing number of Biden's appointments at the Fed, more inflation can be expected. - Breitbart

Common Sense, and Real Leadership

The Olkiluoto 3 (OL3) nuclear plant in Finland transitioned from testing to regular output last month, marking the country's first new nuclear facility in over four decades. The plant is projected to meet up to 15 percent of Finland's power needs. The introduction of OL3 has already significantly impacted the nation's energy prices, causing a drop from €245.98 per megawatt-hour (MWh) in December to €60.55 per MWh in April. This decrease in price is crucial for Finland, which stopped importing electricity from Russia due to the ongoing conflict in Ukraine, leading to a sharp rise in energy costs.

Olkiluoto 3 (OL3) nuclear plant

Jukka Ruusunen, the CEO of Finland's national grid operator Fingrid, claims the OL3 nuclear plant has brought stability to the system. Despite being one of the largest nuclear plants in the world, the risks associated with it are being closely monitored by the authorities. Ruusunen highlighted the important role of nuclear power in addressing Finland's high per-capita electricity consumption, the highest in the European Union.

While nuclear power is filling the current demand, Ruusunen anticipates wind power will become the primary energy source in Finland by 2027. He argues that wind energy has a greater potential for attracting investment, as nuclear energy is often dismissed by environmental investors. Despite the financial challenges, Ruusunen remains positive that Finnish politicians will back the use of nuclear power.

However, business concerns about nuclear power persist. The hefty financial investment needed for nuclear energy production gives investors pause. Ruusunen raises the question: "Who dares to put billions of euros into nuclear?"

Despite these reservations, nuclear energy continues to gain traction in numerous EU countries. France, Sweden, Poland, and Hungary are all planning to increase their nuclear energy production. For instance, Poland recently secured $4 billion in U.S. funding to construct 20 small modular reactors by 2029, while Hungary aims to expand its Paks nuclear power plant.

The example of Finland demonstrates how nuclear energy can be part of the solution to the current energy crisis, especially given the exorbitant energy costs consumers are facing in many European countries. Conversely, Germany made the controversial decision to shut down its remaining three nuclear power plants. This move, coupled with high inflation, soaring energy costs, and a sharp decrease in industrial output, has led the International Monetary Fund (IMF) to forecast a potential recession for Europe's leading economy.

Critics argue that Germany's claims of energy price stabilization are mainly due to the federal government's expenditure of approximately €26 billion in taxpayer funds to bail out energy firms Sefe and Uniper. These companies suffered massive losses after buying natural gas at inflated prices to replace the banned supply from Russia. As Europe explores alternative energy sources, this example underscores the consequences of overlooking nuclear power's potential benefits and instead opting for debt-inducing alternatives. - ZeroHedge

Why Nuclear Power?

Nuclear power makes sense because it provides a large-scale, reliable, and carbon-neutral source of electricity, which can help meet the world's increasing energy demand.