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Awakening the Inflation Monster

Awakening the Inflation Monster

The Supply Times Issue #73

Naseem Malik
February 27, 2025

Hello again, dear readers!

Are we about to experience another dramatic uptick in inflation? Is now the time to rush out and buy that big-ticket item you’ve been wanting before prices rise? Don’t do it! As this issue explores, even the expectation of a rise in prices can make it happen for real. In other words, it becomes a self-fulfilling prophecy.

In other news, AI was at first vaunted as a great leveller in terms of enabling access for everyone to incredible tools and resources. But a sharp divide is emerging between the AI have’s and have-not’s across workplace job seniorities, geographies, and educational institutions. Read more below.

This issue features the usual bunch of AI Insights and recommendations for the week's podcasts, books, shows, charts, and tweets, followed by a final chuckle.

Let’s get going.

Industry Highlights: Consumer Sentiment Risks Awakening the Inflation Monster

The 1946 classic It’s a Wonderful Life provides an excellent example of a self-fulfilling prophecy when George Bailey’s customers, mistakenly fearing his bank is running out of money, rush to withdraw their funds. A “run on a bank” was a common occurrence during the Great Depression but has also happened as recently as 2023, when anxious customers of Silicon Valley Bank withdrew $42 billion in a single day after stock prices fell.

I was thinking about this phenomenon today when I read that inflation expectations are shaping behaviors in a similar way.

In February, preliminary results from the University of Michigan’s consumer sentiment survey indicated that the median expectation for price growth over the next year had climbed to 4.3%. Since the new administration in the White House, this figure has jumped by 1.7 percentage points—the largest three-month increase since 1979, when inflation soared into double digits.

Perhaps this is all just hot air, but policymakers are worried. When consumers and businesses anticipate rising prices, their actions can inadvertently bring about those price increases, just like the panicked customers at George Bailey’s bank.

But how do mere expectations of inflation drive real prices up?

Firstly, through wage demands. When workers suspect that prices will rise, they are more likely to ask for higher wages to keep up with the anticipated cost of living. This is especially true during labor negotiations. Higher wages lead to higher operational costs for businesses, prompting them to raise prices even more, creating a cycle that feeds on itself.

Then, there’s consumer behavior. If you think prices are going to rise soon, you might rush out to buy things now instead of waiting. This creates a sudden spike in demand, leading to shortages and pushing prices even higher. The University of Michigan sentiment survey indicated that over 20% of respondents believe it’s a great time to buy big-ticket items, thinking prices will go up shortly. This rush to buy only reinforces expectations and adds to the inflation narrative.

Thirdly, American consumers are bracing for higher prices flowing from tariff impacts. As prices for essentials like eggs and energy rise, it fuels expectations that inflation is just around the corner, prompting people to demand higher wages and make early purchases. Similarly, if businesses expect the cost of labor and imported goods to rise, they will increase their prices in anticipation.

The Political Angle

Inflation expectations can also differ widely based on political views. Different political parties may hype up or downplay inflation depending on their agendas. These political narratives shape how people perceive inflation, influencing their buying habits and wage demands.

The same survey revealed how sharp this divide is: Democrats reported an average expectation of a 4.2% increase in prices over the next five years, reflecting growing concerns about inflation. This split complicates things for policymakers who are trying to keep inflation in check while navigating the political landscape.

The Global Picture

Looking beyond the U.S., inflation expectations are playing out across the globe, with many countries experiencing similar pressures. After peaking at 11% in 2022, inflation in the rich world has been on a downward trend, but recent reports indicate a worrying uptick. For example, Britain’s inflation rose from a recent low of 1.7% to 3%, while Poland reported a jump from 4.7% to 5.3%. These trends suggest that as central banks begin to cut interest rates, inflationary pressures could re-emerge.

Economists are now on high alert, as tight labor markets and increasing wage demands can create a perfect storm for inflation to return. In this interconnected global economy, actions taken in one region can quickly ripple through others, making it crucial for policymakers to remain vigilant.

Awakening the Inflation Dragon

What to do as a consumer? The selfish part of our brains tells us that now might seem like the ideal time to buy if considering a big-ticket item. But our altruistic side urges us to wait—buying now will help awaken the inflation monster. And as we all know from the post-pandemic recovery, inflation is very difficult to slay.

The Future of Work: Beware the AI Equity Gap

When we look back at history, one thing becomes clear: new technologies often benefit the wealthy and high-performing individuals while leaving lower-skilled workers in the dust. Take the Industrial Revolution, for example. While factory owners and skilled laborers thrived, many unskilled workers faced job displacement and grueling conditions. Fast forward to today, and we see this same pattern playing out with every wave of innovation. From mechanized agriculture to the digital age, the rich get richer, and the rest often struggle to keep up.

So, who stands to gain from the latest tech marvels, particularly AI? To quote directly from Sam Manning of the Centre for the Governance of AI, there are at least two likely mechanisms through which AI could increase inequality in the U.S.:

In the near-term, AI-driven productivity boosts could be skewed towards high-income workers, leaving lower-wage workers behind.
In the slightly longer term, AI-driven labor automation could increase the share of income going to capital at the expense of the labor share.

It’s pretty clear that highly skilled workers are in the driver’s seat. Those who can navigate AI tools and leverage them to boost their productivity will likely come out on top. Think about software developers and data analysts—folks in these roles can use generative AI to achieve productivity levels that rival their more experienced peers. Research shows that as AI continues to evolve, those with a solid grasp of these tools will solidify their positions in the workforce, leaving others behind.

To quote The Economist:

“[Research] suggests a future in which high-flyers fly still higher—and the rest are left behind. In complex tasks such as research and management, new evidence indicates that high performers are best positioned to work with AI. Evaluating the output of models requires expertise and good judgment. Rather than narrowing disparities, AI is likely to widen workforce divides...”

But it’s not just the high performers who benefit; wealthy investors also stand to gain significantly. As AI and automation technologies advance, more of the economic returns could flow to capital owners rather than workers. This shift raises serious concerns about income inequality as the gap between the haves and the have-nots continues to widen.

On the flip side, who’s at risk? Junior workers and those in low-wage positions are particularly vulnerable. Many jobs that rely on manual labor or in-person services are prime targets for automation, which could lead to significant job losses in these sectors. A recent survey by Pew Research found about a third of workers say AI use will lead to fewer job opportunities for them in the long run. It’s a precarious situation for those just starting their careers, as they may find themselves competing against increasingly capable machines.

The Education Divide

As explored by the Stanford Center for Racial Justice, AI could deepen inequality in education, particularly through the specter of an academic achievement gap tied to a school's access to top-tier AI technology. While the potential of AI to enhance learning outcomes is promising, it also comes with significant risks.

Consider this: if schools across a state implement AI, wealthier schools may have a considerable advantage simply because they can afford the most advanced technologies. This disparity raises serious concerns. On one hand, AI could help improve academic performance for low-income students, but on the other hand, it might disproportionately benefit affluent students even more.

This situation brings up challenging questions. Should we celebrate the progress made by disadvantaged students if it leads to a widening achievement gap? Or should we proceed cautiously, ensuring that all students—especially those in underfunded schools—have equal access to high-quality AI resources? Given the entrenched inequalities in the U.S. education system, addressing this potential gap in AI access won’t be easy.

Ensuring Equality in the Future

To tackle the growing inequality fueled by technological advancements, we need to focus on some important measures. First off, investing in solid education and training programs is key. We should be equipping workers with the skills they need to thrive in an AI-driven world, which means upskilling junior workers and those in vulnerable positions so they can transition into jobs that are less likely to be automated.

On top of that, boosting AI literacy for everyone in the workforce is crucial. It’s not just about helping the tech whizzes; we want to ensure every member of the team—from customer service agents to manual laborers—can effectively use AI tools to their advantage.

Image: Iyad Rahwan

AI Insights

DeepSeek is speeding up the launch of its R2 model, originally set for May, because of competition from Claude 3.7, Grok 3, and the upcoming GPT-4.5. This urgency is part of a broader push in China’s AI scene, with big players like Tencent and Alibaba racing to grab Nvidia H20 chips that aren’t affected by US sanctions. The stakes are high since DeepSeek’s R1 caused a huge stir in the global economy, making investors rethink their AI spending. While they felt relieved by quick responses from OpenAI and others, the buzz around R2 has them anxious again.
Meta is reportedly in talks to land a massive $200 billion investment for its AI chip infrastructure, showing its goal to cut back on reliance on Nvidia and create its own AI chip tech. This could give Meta a leg up in AI products by lowering costs and boosting efficiency. If it goes through, this investment would be one of the biggest in AI infrastructure, making Meta a serious contender in the race. It could also shake up the AI supply chain, encouraging other tech giants to ramp up their own semiconductor efforts.
Apple has revealed plans to invest over $500 billion in the U.S. over the next four years, focusing on AI and advanced manufacturing. This major investment reinforces Apple’s vision for self-sufficiency in AI and hardware development, highlighting Apple's goal to stay ahead in technology and incorporate more AI features into its products.

The Supply Aside

📕 Read - Presumed Guilty by Scott Turow

After reading the previous books in the series, I’m looking forward to getting my hands on Presumed Guilty by Scott Turow, the master of courtroom drama. This sequel has garnered some decent reviews. Check out Turow if you're a fan of intense, thought-provoking thrillers.

What Else I’m Reading

Merit is in, DE&I is out: This article explores the tricky balance of creating a true meritocracy in companies, focusing on how many are now prioritizing performance over diversity initiatives. It highlights the political context, especially under Trump, where meritocracy has been emphasized at the expense of diversity, raising concerns that old biases might creep back in.
AI buzzwords you need to know: You may know what Generative AI is, but what is AI Superintelligence? Agentic AI? Reasoning AI? Check out this list of AI buzzwords to know in 2025.
Creative destruction in China: Moving away from traditional Keynesian approaches to embrace the idea of "creative destruction," China is letting failing industries like real estate take a hit so that new, innovative sectors can thrive. This shift comes as they face rising U.S. tariffs and other economic challenges, but it’s also opening up opportunities in tech and competition.

📺 Watch - The Future of BRICS

BRICS is fast-becoming America’s economic bogeyman. As Brazil, Russia, India, China, and South Africa forge a new path as a powerful bloc, the implications for the global order are immense. Could BRICS become a pro-China club? Will India resist expansion efforts? With around 40 countries vying to join, this coalition is poised to challenge the Western-dominated financial system that has prevailed since World War II. This video raises urgent questions about equity in global finance and the potential repercussions for Western powers.

👂 Listen - The Knowledge Project: David Heacock

Lots of bold choices to learn from here! At the age of 29, David Heacock left Goldman Sachs to invest in air filters, leading to the creation of Filterbuy, a direct-to-consumer manufacturer now serving over 7 million customers and valued at $250 million. In this episode of the Knowledge Project, Heacock discusses key elements of building a business, finding balance between ambition and family life, what he would change if he had to start again, and the freight decision he considers his biggest mistake (after spending $7 million on launching a freight business, he never once made it profitable).

💡 Think - The Hiring Freeze is Real—And It's Ugly

The job market isn't just tough—it's frozen solid.

I've been in this space longer than I'd care to admit, first as a practitioner and now in talent acquisition. Outside of the pandemic, this is the worst I've seen. We're talking 576 applications for a single position becoming the norm, not the exception. For all the talk about a strong economy, hiring has slowed to early 2010s levels. Unemployment might be at 4%, but that stat is misleading as hell. Layoffs are low, but that's because companies are white-knuckling their current workforce rather than taking a chance on new blood. That's resulting in a 50% drop in job mobility, stagnant wages, and two-thirds of workers feeling completely trapped.

This isn't just a blip. The Great Resignation traumatized employers, the Fed's aggressive rate hikes made CFOs slam the brakes, and the new presidency has businesses in full-blown Survive Until '25 mode. White-collar sectors—tech, finance, professional services—are bleeding the most, losing jobs over the past two years. And if you're a recent grad? I feel for you. The struggle is beyond real.

The bottom line? This market won't thaw until corporate America can contain the volatility. Good luck to them. And don't expect a spring thaw anytime soon with tariff threats, persistent inflation, and an administration rewriting economic rules weekly. Best advice? Network like your career depends on it—because right now, it does.

📕 Be sure to check out my book: Fire the Boss, Keep the Love: 10 Jobs, 10 Exits, 10 Lessons.

Whether you're starting your career or a seasoned pro, this book offers fresh perspectives and actionable advice to help you level up. I delve into my own personal career story and career wisdom from top executives to explore topics including:

Career transition strategies
Building lasting professional relationships
Tips for thriving in diverse corporate cultures

Fire the Boss, Keep the Love is a must-read for anyone ready to take charge of their career journey and forge an authentic path to success. Get your copy on Amazon!

💡 Course: Craft Your Career!

As the world of work continues to evolve rapidly, with a more globalized labor market and many companies reducing headcount, the risk of getting left behind is higher than ever.

Throw in the rapid adoption of AI in the workplace and the rise of remote work, and even the most competent and hardworking leaders and professionals are struggling to keep up.

In Craft Your Career, Aaron Cleavinger and I teach you the skills you need to stay ahead of the curve and craft the career you deserve. Check it out here and enroll: http://craftyourcareer.com/