Amid rising anxiety over higher prices, economists are hashing out whether inflation is likely to be transitory.
One expert on Wall Street says that it's time to reevaluate the idea, championed by Fed Chair Jerome Powell since April, that the underlying issues would subside in the near team.
"We've seen some cracks to this transitory narrative, and I think that inflation has been persistently elevated for longer than we initially anticipated," Meera Pandit, a global market strategist at JPMorgan Asset Management, said on Yahoo Finance Live (video above).
In Pandit's view, inflation will remain elevated in the coming months for a couple of reasons: First, the pandemic is lasting longer than expected, giving businesses a harder time in terms of forecasting; second, consumer demand is surging amid a massive supply chain crunch.
Pandit expects inflation to moderate as the supply chain issues subside over the following year.
"It won't be completely transitory [for] things like housing, things like food," Pandit said. "We've seen wages come a little bit higher, so we're going to see higher inflation than we did during the last expansion, but it's going to come down and moderate from these levels."
Not all experts agree on whether the supply chain crisis will resolve by the end of the year.
"We expect... strained supply chains to last until the early parts of 2023," Peter Sand, chief shipping analyst at Copenhagen-based BIMCO, a shipping trade group, told Yahoo Finance in a previous interview. "We are basically seeing a global all-but-breakdown of the supply chains from end-to-end."
And according to Siemens USA CEO Barbara Humpton, supply chain professionals are expecting disruptions through 2022.
“It’s clear that there have been massive changes all around the world,” Humpton told Yahoo Finance's Andy Serwer at the annual Milken Institute Global Conference.
'Consumer is fundamentally in pretty good shape'
With elevated inflation, higher prices will likely hit consumers as the cost of goods outpaces wage increases, according to Pandit, though not on a long-term basis.
For instance, the consumer price index for all items rose by 0.4% in September. Year-over-year, prices have increased by 5.4%. But real average hourly earnings for all employees for the month of September only increased by 0.2% compared to August, according to the U.S. Bureau of Labor Statistics. (The number is seasonally adjusted.)
However, Pandit said that she wasn't too worried about higher costs slowing consumer spending.
"It will start to hit the consumer bottom line a little bit more, but the consumer is fundamentally in pretty good shape when we take a look at balance sheets in aggregate," she explained.
Additionally, the personal savings rate was 9.4% in August, based on data available from the Bureau of Economic Analysis, which is above pre-pandemic levels.
'We are a healing market'
While some worry about the consequent effect of higher inflation on economic growth, JPMorgan believes that concern is misplaced and that investors shouldn't be spooked.
For instance, some experts have written about the possibility of stagflation, a situation of soaring inflation and flagging growth last seen during the 1970s during the OPEC oil crisis.
Pandit shrugged off those concerns. "Stagflation is not a credible threat at this point because although inflation is very elevated right now, we're starting to see some of those monthly increases moderate a little bit, and we do expect inflation to moderate throughout the next year," she stressed. "A lot of what we saw back in the 'stagflationary' era in the 1970s and the 1980s are just not dynamics that are persistent today."
And rising inflation won't hurt U.S. economic growth in JPMorgan's view. With this backdrop for investors, the bottom line is that there are lots of places to stash cash right now, Pandit said.
"We are an environment where higher inflation is coupled by higher growth, labor market dynamics are improving overall — we are a healing market," Pandit explained. "We have the backdrop of some pretty accommodative fiscal policy that is still working its way through the economy."
"So at this time we do still favor risk assets and do still see a lot of opportunity and equities," she added. "especially just given how much cash and liquidity there is on the sidelines and valuations being higher in some of the other areas of the market, like fixed income."
Aarthi is a reporter for Yahoo Finance. She can be reached at firstname.lastname@example.org. Follow her on Twitter @aarthiswami.