AT Inflation DA - Michigan 7 2023 BFHGR

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Inflation DA
2AC --- Inflation/Volatility Inev.
Rising inflation is forcing rate hikes and market volatility
Smart 6-21-23 (Tim, June 21, Tim Smart is the Contributing Editor for News at U.S. News & World Report "Powell to Congress: Taming Inflation Has a ‘Long Way to Go,’ More Rate Hikes Likely," US News & World Report, https://www.usnews.com/news/economy/articles/2023-06-21/powell-to-congress-taming-inflation-has-a-long-way-to-go-more-rate-hikes-likely// AP)
Federal Reserve Chairman Jerome Powell tried to walk a fine line Wednesday in the first of two days of congressional testimony between explaining why the central bank paused its interest rate hikes while also acknowledging that inflation is far higher than it desires.
The Fed put a hold on its aggressive campaign of raising interest rates for what would have been the 11th straight time, saying it wanted to digest the effects of a series of hikes that have lifted borrowing costs by 5% since March 2022. At the same time, more than half the members of the Federal Open Market Committee said they expected to have to raise rates two more times this year.
“Inflation has moderated somewhat since the middle of last year,” Powell told members of the House Financial Services Committee in his opening remarks. “Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2 percent has a long way to go.”
Republican committee Chairman Patrick McHenry of North Carolina told Powell to continue his resolve in fighting inflation, blasting Democrats for irresponsibly stimulating the economy during the pandemic and laying the foundation for the worst inflation in 40 years.
“Clearly our economy is in a precarious position,” from rising rates, tighter credit conditions and inflation, McHenry said.
California Democrat Maxine Waters, the ranking member, lauded the Fed for putting a hold on interest rates and warned that the strong growth in the labor market seen in the past couple of years would be threatened by more interest rate hikes. She cited the Inflation Reduction Act, passed by Democrats nearly a year ago, with helping to bring down the rate of consumer inflation from 9.1% last year to 4% in May.
Waters also took a swipe at Republicans, who she said were more concerned with gas stoves than they are with improving the banking system and holding bank executives accountable.
Powell noted the Fed’s actions to date in raising rates, but added: “We have raised our policy interest rate by 5 percentage points since early last year and have continued to reduce our securities holdings at a brisk pace.”
“We have been seeing the effects of our policy tightening on demand in the most interest rate-sensitive sectors of the economy,” Powell said. “It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation.”
In response to a question from McHenry, Powell said that “given how far we’ve come, it may make sense to move rates higher but at a more moderate pace.”
Stocks have run up in recent weeks on expectations the Fed was nearing an inflection point but have taken their own pause this week awaiting Powell’s testimony and a clearer sense of where the economy is headed.
“Periods of economic regime shifts are difficult for policymakers to manage,” Jeffrey Roach, chief economist, and Lawrence Gillum, chief fixed income strategist for LPL Financial, said on Tuesday. “This current environment could be eerily similar to early 2007, when the Fed held a tightening bias on rates as they believed the housing market was stabilizing, the economy would continue to expand, and inflation risks remained.”
“Both the January 2007 statement and the most recent one last week specifically mention the FOMC’s process in determining the extent of additional policy firming that may be needed,” they added. “Clearly, those expectations were not met since we know what happened in later quarters. Despite the reference to 2007, our baseline is that the economic slowdown does not produce another ‘2008,’ yet investors should anticipate some volatility as the economic outlook remains cloudy.”
2AC --- Inflation Up
Inflation is still going up—interest rate hikes prove.
The Telegraph 6-23 [The Telegraph, national British daily broadsheet newspaper published in London by Telegraph Media Group and distributed across the United Kingdom and internationally; 6/14/23, “Battle to tame inflation is not over, warns US Federal Reserve”, The Telegraph, https://www.telegraph.co.uk/business/2023/06/14/ftse-100-markets-live-news-economy-ons-gdp-latest/ DOA 6/26/23] nmui
The Federal Reserve last night paused its most aggressive round of interest rate rises since the 1980s, but stopped short of declaring victory in the fight against inflation. The US central bank decided to hold its target steady at 5pc to 5.25pc rather than opting for an 11th straight increase to borrowing costs. Stronger growth expectations for the world’s largest economy prompted its rate-setters to suggest two more interest rate rises were still likely, taking markets by surprise. The Fed chairman Jerome Powell said: “Inflation has moderated somewhat since the middle of last year. “Nonetheless inflation pressures continue to run high, and the process of getting inflation back down to 2pc has a long way to go.” The Fed’s policymakers revised their interest rates expectations to 5.6pc for the end of the year from previous forecasts of 5.1pc. The central bank also doubled its forecasts for growth to 1pc in 2023 and 1.1pc the following year. Despite the hawkish tone, the decision to stop raising borrowing costs stands in stark contrast to the UK’s struggles to tame rampant inflation. The Bank of England is poised to lift rates by 0.25 percentage points to 4.75pc in its 13th consecutive hike next week amid persistently high price rises and red-hot wage growth. The Fed’s pause comes after a string of economic data released over the past two weeks pointed to higher borrowing costs starting to tame price pressures. Producer inflation, which measures prices charged by wholesalers, fell by more than expected from 2.3pc to 1.1pc in May, figures released on Wednesday showed. Consumer price inflation also dropped sharply in May to 4pc from 4.9pc, lifting expectations that the Fed’s job is close to being done. Mr Powell said however that the “extraordinary resilience” of the labour market had “surprised many, if not all analysts over the last couple of years”. The central bank now expects unemployment to reach 4.1pc at the end of the year rather than 4.5pc. Seema Shah, chief global strategist at Principal Asset Management, said the hawkish stance suggested the Fed was “ clearly trying to avoid a 1970s-style resurgence in inflation”. The Fed started its hiking cycle three months later than the Bank in March last year. However, it has been more forceful than Threadneedle Street, which has raised borrowing costs by 4.4 percentage points since December 2021. The European Central Bank is expected to raise rates by 0.25 percentage points tomorrow.
Inflation’s up—price rises are persistent and embedded.
Horowitz 2-23 [Julia Horowitz, writer for CNN; 2/17/23, “This number shows that high inflation is sticking around”, CNN, https://www.cnn.com/2023/02/17/business/sticky-inflation/index.html DOA 6/26/23] nmui
Annual inflation in the United States slowed to 6.4% in January, easing for the seventh consecutive month. In Europe, inflation is running at 8.5% after peaking at 10.6% in October. In the United Kingdom, which faces weaker economic prospects than its peers, the rate of price increases is also falling: In January, annual inflation dipped to 10.1% from a recent high of 11.1% this past fall.
But inflation remains uncomfortably high and is many times pre-pandemic norms. More worryingly, beneath those headline figures are signs that the fight against steep price rises is far from won, fanning fears that elevated inflation could become embedded into parts of the economy where it’s hard to eradicate.
“The bottom line is inflation is still a problem,” said Torsten Slok, chief economist at Apollo Global Management. His analyses of recent data, he added, showed that price rises could be “persistent.”
One indicator stands out. In the United States, the Federal Reserve Bank of Atlanta publishes a version of the Consumer Price Index that tracks “sticky” prices. It’s based on a basket of items whose prices change less frequently, such as housing, medical fees and personal care products, and it’s monitored for signs that high inflation could have staying power.
“Sticky-Price CPI” for January held at 6.7% year-over-year, its highest level since 1982, even as “Flexible-Price CPI,” which tracks items including food and gas, has pulled back sharply.
Economists and the Federal Reserve are also keeping a close eye on prices for services. The price of buying car insurance, going to the movies or a concert and getting a haircut all climbed in January, both month-over-month and on an annual basis. That’s concerning, given the huge role services play in the US economy.
“What happens to services will be very important,” said Ben May, director of macroeconomic research at Oxford Economics.
Two data points that arrived Wednesday and Thursday heightened investor anxiety about inflation. Retail sales jumped by 3% in January compared with the previous month, the largest increase in almost two years. That’s a problem, given that getting Americans to spend less is crucial to the Fed’s anti-inflation campaign.
Producer prices for January also came in stronger than expected, highlighting ongoing inflationary pressures.
Across the Atlantic
In the European Union and the United Kingdom, the recent slump in global energy costs is expected to lead to a substantial drop in inflation later this year. Thanks to aggressive stockpiling, a pullback in demand and relatively mild weather this winter, the region has dodged nightmare scenarios of energy shortages, which could have propped up prices.
This week, the European Commission lowered its outlook for headline inflation as a result. It now projects that inflation among the 20 countries that use the euro will fall to 5.6% this year and 2.5% in 2024.
But power prices remain well above historical averages, which will continue to pile pain on households and businesses for some time. And the International Energy Agency has cautioned that, unless demand is reduced further, Europe could see energy shortfalls this year. That could push prices up again.
“Inflation will relinquish its grip on purchasing power only gradually over the coming quarters,” said EU Economy Commissioner Paolo Gentiloni.
Food prices also continue to rise at an alarming rate, especially as wages fail to keep up with soaring costs. In the United States, groceries have become 11.3% pricier over the past year, while in the United Kingdom, prices of food and non-alcoholic beverages leaped at an annual rate of 16.7% in January.
In the euro zone, food, alcohol and tobacco prices gained 14.1% on an annual basis.
This time around, inflation has particularly tangled roots. It was driven higher by an explosion of demand for goods from people stuck at home during the pandemic and then made worse by Russia’s war in Ukraine. But, according to May of Oxford Economics, there’s still a lack of clarity on what exactly caused the situation to spin out of control, and what policymakers can do to fix it.
That’s one reason central bankers, who have been working hard to tame surging prices, have recognized that the process could be drawn-out.
“There has been an expectation that [inflation] will go away quickly and painlessly,” Fed Chair Jerome Powell said earlier this month. “It will take some time.”
How much time remains subject to significant debate.
“We’re still in that really uncertain zone,” May said. “We know inflation will end the year lower than it is now and, in all honesty, quite lower, but the speed of the fall will depend on a lot of factors that are quite hard to predict.”
Greedy corporates are increasing prices--that stimulates inflation.
Smith 5-23 [Talmon Joseph Smith, writer for the New York Times; 5/31/23, “Companies Push Prices Higher, Protecting Profits but Adding to Inflation”, The New York Times, https://www.nytimes.com/2023/05/30/business/economy/inflation-companies-profits-higher-prices.html DOA 6/26/23] nmui
The prices of oil, transportation, food ingredients and other raw materials have fallen in recent months as the shocks stemming from the pandemic and the war in Ukraine have faded. Yet many big businesses have continued raising prices at a rapid clip.
Some of the world’s biggest companies have said they do not plan to change course and will continue increasing prices or keep them at elevated levels for the foreseeable future.
That strategy has cushioned corporate profits. And it could keep inflation robust, contributing to the very pressures used to justify surging prices.
As a result, some economists warn, policymakers at the Federal Reserve may feel compelled to keep raising interest rates, or at least not lower them, increasing the likelihood and severity of an economic downturn.
“Companies are not just maintaining margins, not just passing on cost increases, they have used it as a cover to expand margins,” said Albert Edwards, a global strategist at Société Générale, referring to profit margins, a measure of how much businesses earn from every dollar of sales.
PepsiCo has become a prime example of how large corporations have countered increased costs, and then some.
Hugh Johnston, the company’s chief financial officer, said in February that PepsiCo had raised its prices by enough to buffer further cost pressures in 2023. At the end of April, the company reported that it had raised the average price across its snacks and beverages by 16 percent in the first three months of the year. That added to a similar price increase in the fourth quarter of 2022 and increased its profit margin.
“I don’t think our margins are going to deteriorate at all,” Mr. Johnston said in a recent interview with Bloomberg TV. “In fact, what we’ve said for the year is we’ll be at least even with 2022, and may in fact increase margins during the course of the year.”
The bags of Doritos, cartons of Tropicana orange juice and bottles of Gatorade sold by PepsiCo are now substantially pricier. Customers have grumbled, but they have largely kept buying. Shareholders have cheered. PepsiCo declined to comment.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
Other companies that sell consumer goods have also done well while continuing to raise prices.
The average company in the S&P 500 stock index increased its net profit margin from the end of last year, according to FactSet, a data and research firm, countering the expectations of Wall Street analysts that profit margins would decline slightly. And while margins are below their peak in 2021, analysts forecast that they will keep expanding in the second half of the year.
For much of the past two years, most companies “had a perfectly good excuse to go ahead and raise prices,” said Samuel Rines, an economist and the managing director of Corbu, a research firm that serves hedge funds and other investors. “Everybody knew that the war in Ukraine was inflationary, that grain prices were going up, blah, blah, blah. And they just took advantage of that.”
But those go-to rationales for elevating prices, he added, are now receding.
The Producer Price Index, which measures the prices that businesses pay for goods and services before they are sold to consumers, reached a high of 11.7 percent last spring. That rate plunged to 2.3 percent for the 12 months through April.
The Consumer Price Index, which tracks the prices of household expenditures on everything from eggs to rent, has also been falling, but at a much slower rate. In April, it dropped to 4.93 percent, from a high of 9.06 percent in June 2022. The price of carbonated drinks rose nearly 12 percent in April from 12 months earlier.
“Inflation is going to stay much higher than it needs to be, because companies are being greedy,” Mr. Edwards of Société Générale said.
2AC --- Inflation reductions temporary
Declining inflation rates were temporary—major price pressures still remain.
Payne 6-23 [David Payne, previously was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce, Certified Business Economist as recognized by the National Association for Business Economic, staff economist and reporter for The Kiplinger Letter; 6/13/23, “Kiplinger Inflation Outlook: Easing, but Core Inflation Stubbornly High”, Kiplinger, https://www.kiplinger.com/economic-forecasts/inflation DOA 6/26/23] nmui
A broad decline in energy prices contributed to the overall easing. Gasoline declined 5.6% in May, and natural gas and electricity also declined. But these prices are not likely to fall much further, and so will not be able to contribute to further inflation reductions.
Price pressures remain. Excluding food and energy, inflation is at 5.3% for the past twelve months and is likely to stay around a 5% rate for the rest of the year. Shelter prices, the biggest single component in the index, are still rising, with a 0.6% gain in May. These price gains are expected to slow the rest of the year, however. The prices of other services rose a moderate 0.3%. This is the so-called “core services” component that the Federal Reserve is focused on. Price increases at restaurants are still elevated, at 0.5%.
Signs of inflation moderating should enable the Federal Reserve to pause its campaign of hiking short-term interest rates at its next policy meeting on June 14. Concerns about depositor confidence in certain regional banks will be the main reason for the pause, but the May inflation report will make the decision easier.
But given the stubbornly high “core” inflation rate, the Fed could hike rates again at its July 26 meeting. The Fed remains concerned about persistent inflation in the services sector, which will likely keep it from cutting rates this year unless a recession hits. The Fed would like to see wage increases start to soften in order to prevent a cycle of further price increases, with businesses trying to maintain their profit margins by passing higher wage costs along to customers.
2AC --- Ukraine Alt cause---Inflation
Ukraine will inevitably harm growth.
Dario Caldara 22 Ph.D., Economics, Institute for International Economic Studies, Stockholm University, 2011, M.Sc., International Economics, Kiel Institute for the World Economy, 2005, B.A., Economics, Bocconi University, 2004, Sarah Conlisk, Matteo Iacoviello, and Maddie Penn, May 27th 2022, "The Effect of the War in Ukraine on Global Activity and Infla

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