Postcards From The Front Line Of Inflation.

For the past week your correspondent has been in Boston, catching up with clients, team members, Economists, Academics, bankers and data scientists all trying to read the tea leaves of the looming inflationary spiral.

Here is something worth noting - in the 15 years CoreData has been doing business in the USA, we've always been mildly scornful of their banking services, Government bureaucracy, state based systems and wealth management industry.

But things it seems are changing and changing fast.

The first sign of this was at Boston's Logan airport, no more long queue's for processing, of scanning fingerprints and answering questions - the facial recognition technology at work now means that you walk up to the customs agent and he greets you with a cheery "Hello Andrew.." before he even opens your passport, and follows up with "are you still at Park Street.." not data contained in my Passport.

The trend continued - the banking services being offered are now digital direct and very efficient - the data feeds we are accessing are faster and better than those we are getting in Australia and the Government officials - more open and less guarded about their plans.

Some might find the customs official scanning your face for your data scarey - I just found it really, really convenient, because instead of multiple forms - he had accessed all the data he needed about me from my battered visage.

But here's the thing - these kind of technological leaps tend to reduce the number of people needed in the workforce and create unemployment - pumping people back into the work force- but this time - that hasn't happened.

Despite great technical leaps forward - unemployment in America is down, not up and it looks like that's not going to change any time soon - creating the looming spectre of inflation. Not transitory inflation - but real sticky inflation.

Have look at the chart below and look at the trend.

The story is in the data - Unemployment is almost half of what it was 12 months ago and heading down. Every coffee shop, corner shop, retail outlet and bank now seems to feature a sign on their front door that they are hiring complete with QR code to scan and apply on the spot.

While this isn't causing supply chain inflation, some of that is coming from exogenous forces like Chinese recalcitrance, Taiwanese covid problems and the war in the Ukraine - the lack of workers to make stuff, to serve people and to move stuff around, certainly isn't helping.

The bigger problem seems to be the changing nature of America's workforce and the fact that because of Covid it hasn't been able to use one of its normal economic tricks - immigration - to keep labor supply costs down and demand up.

But in what appears to be a double whammy - it seems the baby boomers (those born between 1946 and 1964) - the most despised generation on the planet - long seen as male, pale and stale are finally doing what everyone wanted them to do and getting out of the workforce.

Since February 2020 US Census data shows that more that more than half of the five million who have retired are aged 55 or older - a retirement boom effectively funded by record house prices and share portfolios as well as generous tax concessions.

Here's the key figure - in the past 66.5% of people aged 62 or older were in fulltime employment - in November last year in the USA - that had dropped to 49.3% and its continuing to fall.

What's worse - digging into the data reveals this aging population isn't evenly distributed - the USA now has a number of "Super Aged" states ( those with 20% of the population aged 65 or older).

These states aren't the retirement states like California and Florida - but the productive ones, Maine, New Hampshire and West Virginia and what's worse - if immigration isn't resumed according the US Census Bureau, all of the USA will qualify as super aged by 2028.

There are plenty of parallels in this data for Australia and plenty of lessons for the Australian Superannuation industry.

Like the USA Australian population growth has fallen to 1.09% and immigration has been effectively suspended since Covid, leading to a compression in the growth in employable Australians and putting real pressure on wages for the first time in years.

The most obvious effect of this morphing of the economy is on the bank balances of Australian's - people who have retired or are about to retire tend to spend less and they certainly pay less taxes and people in a tight labor market tend to demand more for their services.

So the problem in Australia remains the same as it is in the Western world - unless we can keep the boomers in work and get immigration moving again inflation might be very sticky and growth might be an illusion.

Buckle up 2022 - 2027 might be bumpy.