Whither thou Goest Inflation?
I went to a garden party, to reminisce with my old friends.
A chance to share old memories, and play our songs again.
When I got to the garden party, they all knew my name.
No one recognized me, I didn’t look the same.
But it’s all right now. I learned my lesson well.
You see you can’t please everyone so you got to please yourself.
Garden Party – Ricky Nelson
…..
On March 2nd, 2021, Reuters interviewed Mary Daly, president of the San Francisco Federal Reserve Bank. She said in part “runaway inflation is not imminent…The bigger risk is too low inflation, and it will likely be some time before inflation is sustainably back to 2%”.
That was only 11 months ago. I don’t mean to pick on this particular Fed Governor. Her opinion was widely held at the Federal Reserve as well as in the big money center banks (Goldman, JP Morgan, etc.) and many economists. You could almost say it was the “consensus” of “the science” that there would be no big or lasting inflation.
“The science” was wrong. Very wrong. Last week, inflation measured by the CPI index hit 7.5%. This week, the Producer Price Index (PPI) came out at 9.7%. The latter number is the second highest ever recorded and the former number is the highest in 40 years. The computation of the CPI has changed over the decades and if you compute it the way they did in 1980, inflation is as hot as it was then. The PPI represents cost increases to producers, which means those cost increases have yet to filter into the retail prices you pay. That certainly sounds like hot inflation is here and going to stay for a while.
But you wouldn’t know it from following Big Propaganda Media, the Biden Regime or Big Tech. The message from them is that “inflation has peaked” and will be coming down. They have been saying that since November. You see, inflation is bad for the party in power and the cabal of media, tech and government want to downplay it. The inflation expectations of consumers play a role in future inflation so maybe you will play along and inflation will come down.
Whether they are doing it to intentionally mislead, or if they actually believe it, is frankly irrelevant. They have been wrong about it for more than a year. We don’t know exactly what actions the Federal Reserve will take to combat inflation or when. But we do know they are way late in taking any action.
I have stopped following the groupthink of the cabal and try to make my own assessment of what may be next. I have no crystal ball, nor am I an expert and the Captivating Mrs. Campbell would be the first to tell you that I am many times wrong. At least my views are not flavored with some unseen agenda. My only agenda is to make decisions that are best for my family armed with as much knowledge as I can amass.
Here is what I look at that leads me to believe that this hot inflation will continue for some time.
The PPI is higher than the CPI and the PPI eventually feeds to the CPI unless businesses decide to reduce their margins, which they hate doing.
Wages are going up by 9% a year right now. That is very sticky and wages feed in to the cost of everything. When you get a raise at work, that is great. But likely, wherever you work will need to charge their customers more to pay for your higher wages. Once people get used to a 10% raise, it’s hard to tell them next year is only 2%. Hence, wages fuel longer inflation.
The chip shortage which has affected the price of new and used cars is far from over. U.S. car manufacturers will probably build 2 million fewer cars than demand again this year. It will be 2023 before there is any let up there.
We have all seen the increase in the cost of a house. The rents at apartment buildings are now rising even faster than house prices. Both of these take about 6 months to feed into the CPI data. We haven’t seen the worst here yet.
Nothing is more impactful than the price of food. It is the one thing that no one can do without for more than a matter of days. I listen daily to Kansas State University podcasts on what is going on in grain and livestock markets. Prices are near record highs. These are volatile markets and hard to forecast. But there are plenty of indicators that the price of food will continue going up. And the costs to farmers and ranchers to produce their products is going up too.
The news services will occasionally tell you what is happening with lumber or oil or silver. I follow the Bloomberg Commodity Spot Index. It is made up of a whole basket of commodities that go into everything we buy or consume. And it is the spot (current) price, not the futures market which involves speculation. As I write this, it stands at 554.18. That’s up 29% from a year ago. It is up 10.34% so far this year. These increases are not slowing down.
It is well known what has happened to the price of oil and natural gas. This is one area where I think the increases may be nearing an end. Oil hit $95 a barrel this week. At that price, every producer in the world will make lots of money and will pump every barrel they can. That will keep the price from going much higher than $100, absent an existential shock.
The great economist Milton Freidman said, “inflation is always and everywhere a monetary phenomenon”. The Modern Monetary Theorists hate Friedman and constantly deride everything he ever said about economics. I think he was brilliant. We have inflation for a number of reasons, but principally because we have printed too much money. Until we suck that money out or it is lost or devalued, inflation will persist.
This is not an investment letter and I am not and do not give investment advice. That said, you see where I am in terms of inflation for 2022 and in to 2023.
But after that, things could change. I began this missive showing how the Fed was still trying to get inflation up 11 months ago. Things can change rapidly. Depending on how hot inflation gets and what the Fed does and where the economy goes as a result, we could see this inflation go away a lot sooner than it did in the 70s and 80s.
But don’t believe the cabal or me. You can look at the numbers, but what you see in all the things you pay for every day will give you a better picture of what’s really happening than the Fed statistics. Do your own research and trust your instincts. They are likely more accurate than anything you will find in the NY Times.
I remain respectfully,
Congressman John Campbell
Drive fast & live free