Stagflation analyzes… While stagflation analyzes are now at the forefront, it should be noted that the sector's predictions are shifting in this direction and creating hesitancy. Supply chain problems and geopolitical risks persist. At the same time, demand variables are at such a level that they will be affected by higher financing costs arising from the inflationary environment or Central bank policies.
Sectoral trends… As the sectors see more signs of uncertainty for a 6-12 month period, this situation can be expected to reflect negatively on the investment appetite. Raw material inflation, which covers products such as steel, gasoline and diesel, still poses difficulties in terms of margins and production costs. As long as the impact of supply risks in oil and gas prices continues, it seems that the environment of uncertainty will continue in terms of this issue. Delay effects due to lack of supply in new projects and deliveries may slow down sectoral activities. Factors such as supply chains, premature cooling in demand can give signs. There are also external risks arising from markets such as China, so there is a tendency to plan more to reduce dependence on external goods and services.
As the economy changes, there will be a slower trend in employment due to tightening policies and slowing economies. As inflation rises, the upward trend in wages will continue. As long as households are concerned about inflation and its effects, there will be high demand for wage increases to bolster spending power. The collapse of the Michigan confidence index is actually related to the economic power eroded by inflation. At this stage, there is a linear and strong relationship between wage inflation and demand inflation.
Conclusion? Low supply and high price increases in all goods and input components indicate an uncertainty that will be seen for a while in terms of growth and inflation outlook. A possible recession may be a concern for the Fed in the coming period, which indicates that interest rates will be lowered from the peak in 2024. The Fed's response mechanism should also not be lagging in the QE and QT thresholds, so an image emerges where they need to take into account the recession effects after next year, as well as the increasing inflation dynamics at the moment.
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