Over the last few weeks I’ve seen several (what now appear to be) vain attempts to explain-away price increases as “post-pandemic” recovery reactions. Energy costs, food costs, commodities costs, etc., have all been rising at extremely rapids rates. Here’s the problem: When they reached pre-pandemic levels, they didn’t stop there. The post-pandemic and seasonal fluctuation arguments have just been rendered incorrect.
Let’s start with overall inflation. Recall us discussing common, basic economics in the last few weeks: If you make too much of something, it’s value decreases, especially if demand remains relatively constant (or doesn’t rise as fast at the supply). While monetary policy is a bit more complex, the fact of the matter is this: We are printing dollars and running up massive debt faster than we can safely sustain. The report released today on inflation is showing this:
- The Consumer Price Index (CPI) is now showing inflation at its fastest pace since 2008 (the beginning of the housing and financial implosion)
- The CPI in just May rose at a rate of 5%; analysts were expecting an acceleration of only 4.7%.
- Core CPI (excluding energy and food) rose at 3.8%. That’s the fastest pace since 1992!
When the Fed expects 2% annual rises, but now you have month-on-month rises in the 4%-5% rate… that compounds, folks.
Lumber – now at 300% to 400% of pre-pandemic levels. This is not just housing-boom and low-interest rate causes any longer. And now the Fed is talking about a change in interest and bond policy, to combat the “unexpected” inflation.
Gas prices at highest levels since 2014 … and still rising. This is not just pandemic recovery conversation any longer.
Used cars are up in price by almost 30%. While the semi-conductor shortage has an impact on this, the price jump is also reflective of longer term trends. Prices seldom recede after they have increased.
Bolstering unemployment benefits: Even the Bar Rescue guy, Jon Taffer, went on the record yesterday along with restaurant owners in KC and other cities, saying they couldn’t get kitchen staff unless they were paying $35-$40/hour (up to twice what they were being paid in the past); that is now being passed onto their customer end-pricing, which is going up by an astounding 20%-25% in many places.
Back to the monetary policy: Dealing with a lot of foreign currencies in my job, let me share just one example: The South African Rand, in trouble on foreign markets for a long time now due to corruption and decline in South Africa, has been notably weak against the dollar for years. However, since the November election the SAR has gained almost 20% (that’s HUGE) against the US Dollar. Why? Because we are diluting our dollar by printing more of them that we should be.
Many of you may have seen the dollar rising – which it is against some developed market currencies that are still in deep pandemic shutdown troubles (e.g., against the Euro and the Yen). But all of these currencies have collectively not done well against global equities. And China has continued to slowly gain ground on them all.
The bottom line, cutting through the economic complexities, is really this: If the dollar continues to weaken, things cost more. Imports cost more. Domestic products cost more. Inflation accelerates. This is a direct result of spending and other policies by the current administration. Yes, yes, I know – pandemic recovery accounts for part of this. But again, that ship sailed after pre-pandemic price levels were blown away in the last 60 days. Blown away. Here’s just a taste of bad policies by this administration that are directly contributing:
- When you cut energy production in the US
- When you borrow and spend like a drunken sailor on leave
- When you pay people to stay home
- When you give tax credits (and expand them) where they’re not needed
- When you put in regulations to only buy union products and pass legislation to agree to pay at least $400B more for those union products
- When you cut our ability to extract raw materials for things like batteries and then force us to buy those materials from overseas developing markets
- When you pull all your troops out of sensitive places that … you know … supply those aforementioned raw materials
- When (fill in the blanks) …
You get what we are seeing now. And we’re not done yet. This is round 1.
Solutions: Stop the crazed spending. Return to energy advocacy in the US with a long term plan for transformation. Step back from a pro-union stance that is crippling several industries as we speak.
