More Evidence of Stagflation in the PMIsDecember 16, 2020
Markit’s preliminary December PMIs were released today and our takeaway is that they show the risk of some kind of stagflation is gaining a little steam. In both the manufacturing and services surveys, new business/new orders dropped while input prices rose. In the case of the services PMI, input prices rose to the highest on record for the second straight month. In the manufacturing survey, input prices rose to the highest level since mid-2018, just after the tax deal was inked. When such divergences persisted in the past it was prices that caught down to business activity. Will it be so this time around, or will prices continue to increase regardless? Currently, the bond market is voting on the latter scenario, which is why we continue to keep our eye on breakeven inflation expectations.