Rising inflation is being blamed on the high commodity and energy prices triggered by supply chain problems and the war in Ukraine, but one investor argues there’s another factor at play - millennials.
In an interview on CNBC’s Squawk Box Europe, Smead Capital Management’s chief investment officer Bill Smead said one of the problems facing the U.S. economy today is that there are “too many people with too much money” who are chasing “too few goods”.
In the U.S., Smead explained, there is an estimated 92 million millennials, most of whom are aged between 27 and 42-years old. He said the last time people in this age bracket made up the bulk of consumers, we saw something that was termed “wolverine inflation”. That was when 75 million baby boomers replaced 44 million silent generation consumers back in the 1970s, causing inflation that was extremely difficult for policymakers to put an end to.
“So we have in the United States a whole lot of people, (aged) 27 to 42, who postponed homebuying, car buying, for about seven years later than most generations,” he said. “But in the past two years they’ve all entered the party together, and this is just the beginning of a 10-to-12-year time period where there’s about 50% more people that are wanting these things than there were in the prior group.”
Smead said that the Federal Reserve can take certain actions, like tightening credit standards, but it cannot do anything to reduce the number of people wanting to buy these necessities in comparison to the prior generation.
The argument seems especially valid in the real estate market, where growing numbers of millennials are intent on becoming homeowners at a time when homes are harder to come by than they have been in living memory. Chronic inventory shortages are one of the main factors behind the rocketing home price increases over the past two years, with many markets seeing more buyers than available homes.
There will of course be lots of millennials who disagree with the idea that they have tons of cash and are purchasing assets willy-nilly. Last month, CNBC found in its latest millionaire survey that millennials are three-times more likely to be cutting back on big purchases than their counterparts in the baby boomer generation, for instance. There are also plenty of millennials who say that fear of getting into debt is preventing them from buying homes.
That said, millennials do make up the largest chunk of the homebuyer market by generation, and are also the largest generation in the U.S. in terms of population, so Smead’s argument might have some merit.