The Peter Zeihan Podcast Series - Inflation: What's Causing It and Why? (COVID and LABOR) || Peter Zeihan

Episode Date: December 15, 2023

I've got some good news and some bad news on inflation in the US...one has to do with COVID, and the other is about the labor market. Which do you want first?Full Newsletter: https://mailchi.mp/zeihan/inflation-whats-causing-it-and-why

Hey, everybody, Peter Zine, coming to you from Millennium Park in Chicago. And today we're going to talk about inflation. So annual inflation rate right now is below 4% coming down from nearly 10% a little over a year ago. And we've got two things that are going on. One that is small that is getting bigger by the day and one that is big that is getting smaller by the day. So first the one that is big and getting smaller. That's COVID. If you remember back to the days of COVID,

we were dealing with lots and lots of changes. Every time we had a closing, we'd stop buying services and start buying goods. Every time we'd had an opening, we'd flip. And, you know, if we were closed down, the goods that we would buy would be like home improvement items and computers. And if we opened, we'd go to restaurants and go on vacation and have revenge travel. Every time something changed and opening the closing, a new variant,

new vaccine, anti-vaxxers through a fit, hypocondriacs got a hold of policy, whatever it was, we would change what we do. We'd change how we act. And that would change the profile of the industry space. Because every time we change what we say we want, it takes about an 18-month period for industrial supply chains to catch up to what we say we need. Well, if you think back to about two years ago, Texas, Florida, and Arizona reopened for the last time. Over the next few months, every other American state except for California, plus Ontario, joined in as well. And then we got to a point where finally the rest of Canada and California joined as well. And we got back to some degree of normal.

So it has been roughly 18 months. And so what we've seen in the last year is basically industrial supply chains catch up. We have gotten to a situation where most of the industry is now matching what has been a more stable consumption portfolio. And you should expect that headline inflation to continue ticking down bit by bit by bit. If you want to put this political terms, inflation going down had absolutely nothing to do with the Biden administration. But its converse is also true. Inflation going up had nothing to do with the Biden administration.

It was us. It was just us, changing our minds about what we wanted and when. That is going away. What is coming up is labor inflation. The baby boomers are the largest generation we've ever had. Over half of them have already retired. And as they step back from the labor force, we're discovering that the younger generation, the zoomers,

just don't have it in them. They're the smallest generation we've ever had, and they're now the new force and the workforce. And if you look at the difference between the exiting boomers and the entering zoomers, this calendar year we had a shortage of about 450,000 workers. That number is going to increase every year for the next 11 before peaking in 2034 had an annual shortage of about 900,000.

How do we know? They've already been born. We know what the inflow to the labor market looks like for the next 20 years, and we're going to have to wait until another large generation enters the workforce. Those will be the kids of the millennials. But that can't happen until those kids grow up and get trained, and that won't happen until the 2014s. So a lot of the inflation that we're seeing right now,

is going away, but it's going to be replaced with something that is far more sticky and something that isn't going to go away for quite literally decades. So, you know, buckle up.