Conditions might be aligned for persistent inflation
Influx of money chasing fewer items helps feed rise in consumer pricesJune 17th, 2021
Are you shocked every time you go to the store and buy groceries and see how the price of basic items keeps going up week after week? If inflation makes you nervous, you are not alone.
According to the U.S. Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers rose 0.8% in April on a seasonally adjusted basis; rising 4.2% over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.9 percent in April, seasonally adjusted; up 3.0% over the year, not seasonally adjusted.
The BLS defines the Consumer Price Index, which affects hundreds of millions of people, as “a measure of the average change over time in the prices paid by urban consumers for a representative basket of consumer goods and services. The CPI measures inflation as experienced by consumers in their day-to-day living expenses. CPI indexes are used to adjust income eligibility levels for government assistance, federal tax brackets, federally mandated cost-of-living increases, private sector wage and salary increases, poverty measures, and consumer and commercial rent escalations.”
Some goods, ranging from construction materials to microchips for cars, are in limited supply. With the latest world cash stimulation by governments, it has created a situation of more money chasing fewer items and thus assets appreciate, meaning prices for them increase. We have a situation where workers are even in short supply, for there are some people who are collecting more at home on unemployment than they do working.
Why is there such a disconnect between what we are being told by the BLS and what we are seeing when we go to the store to buy something that has jumped in price beyond 4%?
With home construction in high demand, lumber prices have risen to $1,300 per 1,000 board feet last week from $344 in May 2020. Earlier in May, the price peaked at $1,600, according to tradingeconomics.com. That is more that 300%, if it were 4%, lumber cost should be closer to $360 per 1,000 board feet. A year ago, crude oil was less than $40 a barrel and more recently it is closing in on $70 a barrel, according to trandingeconomics.com. Again, that is not 4%, but 75%.
Inflation is here, and there is a very good chance it is not going away any time soon. I have heard reports calling it “transitional” inflation, whereby supply and demand is temporarily disrupted because of the economic slowdown due to the pandemic.
However, all this stimulus cash is a loan that the government took out using its citizens as collateral. Guess what. We need to pay it back and one way to make paying it back more manageable is through inflation.
In the late 1970s and early 1980s, inflation got out of control, and we had a situation of “stagflation,” which means high inflation with low employment. I remember those days in school when they had a “WIN” campaign, which stood for Whip Inflation Now. Could that happen again? Even though there are many thought leaders who don’t think it will, I think it can.
•Too many people are choosing not to work and financially seem to be figuring it out through other income sources from the government.
•Businesses are learning ways to be more efficient with the workers they have and may not choose to employ more human workers in the future.
•Robots are here, and we are going to see that more and more, such as driverless vehicles in delivery services. Fewer people are needed in those systems.
•Fear of missing out is contributing to borrowing activity, especially in real estate. Millennials are bidding up and buying real estate with artificially low interest loans and locking into obligations that may not be easy to get out of.
•Regarding taxes, no one will avoid getting hit with paying more. Whether through income taxes, sales taxes, property taxes, all of those go up with asset appreciation too.
Whether 4%, 6%, or revisiting the highs of the last 1970s, one thing seems certain, inflation is here, and get ready, it is going to be one heck of a ride whether transitional or here to stay.
Sarah Carlson is owner and founder of Fulcrum Financial Group, of Spokane. She can be reached at 509.747.2075.
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