Producer Prices Blow Out

And companies have been reporting that they’re able to pass on those surging costs. So here we go with inflation.

By Wolf Richter for WOLF STREET.

Inflation that producers are experiencing is now blowing out. The surging input costs and the ability to pass on those higher input costs that have been reported by company executives as part of the services PMIs and manufacturing PMIs, and that owners of small businesses have told me about for months, have now solidly fired up the Producer Price Index for final demand, which in March jumped by 1.0% from February – double the rate that economists polled by Reuters had forecast – after having jumped 0.5% in February, and 1.3% in January. The PPI has now taken off, after hovering in fairly benign territory last year.

Compared to March last year, the PPI jumped by 4.2%, the sharpest year-over-year increase since 2011, according to the Bureau of Labor Statistics today. Note the surge over the past three months (data via YCharts):

The “Base Effect” that I discussed yesterday can be blamed for only a portion of the year-over-year increase. A big part of the base effect is going to come in April.

The PPI hit a high in January 2020 with an index value of 119.2. In February and March last year, it dropped 0.5% from the prior month, and in April it plunged 1.1% to an index value of 116.7, driven by the collapse in fuel prices. And that was it in terms of declines. It has been rising ever since (data via YCharts):

What might April look like? Today’s index value at 123.1 is already 5.5% higher than that of April last year. If the PPI rises 0.5% in April from today’s level, it would make for a 6% year-over-year increase, the highest since the index was started in November 2009. And this would include the full brunt of the base effect.

The index for prices of goods soared 1.7% in March from February, the biggest increase since the data series was started in 2009. Energy costs jumped 5.9% for the month. Within that, gasoline prices jumped 8.8%.

The index for prices of services jumped 0.7%, the third month in a row of increases. These services include wholesaling of machinery and vehicles, which soared 6.7% in March from February, confirming the giant jumps in wholesale prices for used vehicles that I reported on March 27 based on weekly auction data.

Excluding prices of foods, energy, and trade services, the index jumped 0.6% for the month and was up 3.1% year-over-year.

So here we go with inflation pressures building up in the pipeline. The producer price index measures inflation for companies – input cost increases. And these companies are now reporting in the PMIs that they’re able to pass on those price increases, ultimately to consumers.

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  212 comments for “Producer Prices Blow Out

  1. C says:

    This last year should have been deflationary but we’re in a new world. Great report.

    C

    • Wisdom Seeker says:

      Why should it have been deflationary? The shutdowns disproportionately impacted lower-wage workers. That took large chunks of supply offline, but since those workers don’t earn much, it left demand largely intact.

      When production/supply decreases faster than demand, price inflation is inevitable. And yet production is down, so it’s still a recession.

      P.S. Back in the 1970s economists of the day had also never seen and could not imagine an inflationary recession … until they lived through a decade of it. People forget too fast.

      • C says:

        Haven’t forgotten but we didn’t have 5.4 trillion of government cheese plus another 2.5+ help from the fed! This should be a deflationary event but it’s not! Those low income workers will be hurt the most!

        C

      • John Taylor says:

        Back in the 1970’s, debt levels were much lower.

        Most people don’t understand how deflationary debt is. Huge quantities of dollars are required to service this debt. Creating new debt is only inflationary in the short term – it brings future spending forward.

        The Fed “fixed” the deflationary spiral from the 2020 lockdowns the way they always do – by encouraging massive lending vs assets. Margin loans to hedge funds more than doubled causing stocks to soar. Mortgage backed securities were purchased in force to encourage a housing boom. Corporate and Junk bond markets were backstopped and forbearance plans extended to prevent defaults.

        This asset inflation, driven by massive leverage, has more in common with 1989 Japan than with the 1970’s US when infrastructure spending and war spending and a draft pushed demand and incomes ever higher.

        Not sure when the stock market turns, but the SLR rule and Archegos blowup point to a reduction in margin lending. Forbearance programs can’t last forever. Supply disruptions and trade bottlenecks due to Covid restrictions will eventually ease. The government will try for massive infrastructure spending along with higher taxes, but it will be as effective as the early FDR spending programs which were fought every step of the way.

        It’s really hard to tell what to expect next in the markets, but we’ve certainly got some major problems to work through. We could see coordinated war in Ukraine and Taiwan, risks are high. Interesting times.

        • GotCollateral says:

          > This asset inflation, driven by massive leverage, has more in common with 1989 Japan than with the 1970’s US when infrastructure spending and war spending and a draft pushed demand and incomes ever higher.

          This, but people want to ignore the lessons the japanese have been learning with +30 years with QE…

          > It’s really hard to tell what to expect next in the markets,

          Well, what happened after 1989 in japan? :P

          My eye is on the spread on the yield between IG (47% BBB) hedged after fees, tax, and subtracting off RFR vs 10y UST hedged… right now that is ~16 bps.

          Once that goes negative, the indiscriminate buyers of IG will walk away. This is the kind of setup (neg spreads) i was watching in SOFR throughout 2019 before it went t1ts up.

      • bb says:

        So the Owners of restaurants,delis,stores,healthshops,eventplanning co.s,petgrooming co.s,printers,florists,small jewelry stores are low income?The smallholder landlords and Small family farmers are low wage earners?

  2. Tom S. says:

    Steel, asphalt, gas, lumber all up double digits…transitory!

    • Sailor says:

      Lumber is up 350%. Electrical wire jumped 35% day before yesterday. Good luck finding ABS and PVC plumbing fittings at any price from next month.

      • Brant Lee says:

        No kidding. They’re jacking the prices and stimulus fixer-uppers are paying. All for minimum quality foreign junk that won’t last.

        Now buying an old house and fixing it up is cost-prohibitive, even with your own labor. People buying old property had better know what they are getting into. People building new homes had better be prepared to pay dearly for repairs to cheap made materials long before the payments are finished.

    • TangoOscar says:

      Soy, corn, wheat, palladium, copper…

      • historicus says:

        Computer chips….which GM cant get enough of and just started shutting production.

        Who has us by the short hairs?

  3. Depth Charge says:

    I’m sure Weimar Boy Powell is soiling himself with glee.

    • eastern bunny says:

      Weimar Boy will be again on 60 min on Sunday telling us how is looking after the jobless Americans. Cental bankers have rock star status nowdays.

      • Depth Charge says:

        It’s too bad that Jihadi Johnny is no longer with us. He could save a bit of face by making a cameo appearance with his large blade, appearing behind Weimar Boy, and…well….nevermind….

    • historicus says:

      Taxation is a TAX.
      The Fed is NOT a taxing body. They do not have the authority.
      Their second mandate of stable prices demands they do not promote inflation.
      So we are being taxed by an unelected body on which we have no representation. TAXATION WITHOUT REPRESENTATION.
      And not a word from the beneficiaries of cheap money…the vote buying, trillion dollar bill passing politicians of Washington DC.

      • Wisdom Seeker says:

        Historicus, you meant the first sentence to be “Inflation is a tax” right?

        “Taxation is a tax” is usually true, except if Congress is involved. When it’s “taxation” of the wealthy or large corporations, or whoever else owns Congress, then it’s more often an illusion. It’s been a long time since I saw a piece of legislation that actually does what it’s advertised as doing.

      • Finster says:

        It’s even worse than that. At least with an actual tax, politicians have to debate it, vote on it and sign it into law. The people who pay the tax see the bill. They know how much they’re paying and who they’re paying it to. There is accountability.

        With inflation, the government covertly enlists grocery stores, landlords, utilities, and providers of virtually all other goods and services as tax collectors. It’s difficult if not impossible to discern how much tax is being paid or to whom. When the tax is paid, it appears to have been levied by the seller. It’s that greedy oil company, bad weather, natural disaster or some kind of accident that gets blamed for the expense.

        Inflation is the worst kind of tax there is.

      • Robert says:

        Sadly, the Fed charter says nothing about a mandate of stable prices…but it does espouse an “elastic currency.” Elastic indeed. (But 300 million Americans did not read Ron Paul’s End the Fed or were persuaded in the MSM he was just some kind of kook.)

    • Phoneix_Ikki says:

      Sorry PUS boy Jerome either saw this and don’t give a crap or completely not on his radar. After all, to a certain extent, inflation is a good thing for the rich especially around hard asset like Real estate.

  4. Fred Flintstone says:

    ……and the crooked fed is buying every bond in sight……long and short duration……..the long bond yield is hardly up today.
    So the hands off long rates fed is lying up a storm.
    I don’t even believe the balance at the fed info any longer.
    Is Jay Powell related to Al Capone thru marriage.

    • Depth Charge says:

      An army of angry working men need to grab Weimar Boy by the nape of the neck and drag him down to the homeless ghettos he has created, and rub his nose in the urine and feces on the sidewalk, asking him if he’s happy with the new home he’s created for himself, then strip him of every dollar he has and every bit of dignity, and make him live the rest of his days there.

      • Petunia says:

        The cult of money worships money. They care about no one.

      • MonkeyBusiness says:

        This army of angry young men needs a leader. I nominate DepthCharge!!

      • historicus says:

        The working families, the small business owners, will be pounded and crushed by this inflation.
        Next items to see a sharp price rise? Pitchforks and Torches.

        • MonkeyBusiness says:

          But if prices go up high enough, no one can afford pitchforks and torches.

          In other words, it’s all good.

        • Anthony A. says:

          There will be an ample supply of pitchforks and torches from China, but most of them won’t work.

        • joe2 says:

          The government will beat inflation to the punch in destroying small business. SBA loans previously were backed by business assets as one would expect for a LLC. Now the SBA will increase the loan amounts, but requires a personal asset guarantee. Looks like entrapment to me.
          Bankers pincer attack – left flank theft by inflation and right flank theft by loan.

        • w says:

          Maker movement?! :-)

      • Shiloh1 says:

        Don’t forget Kash-in-Kari. He has unlimited FRN at the ready.

      • Jon says:

        I totally second you
        Only revolution can change things

      • Lynn says:

        Chain him to the bloody sidewalk.

      • Maximus Minimus says:

        The army of working men in homeless ghettos will never do that. As has always been the case, they need leaders to tell them who the enemy is. Otherwise, they will just do it to themselves. Unfortunately, beware the fake leaders.

    • Swamp Creature says:

      Al Capone would do a better job managing the economy than J Powel and the other clowns at the Fed. After all, according to his business card he was a certified furniture dealer in Chicago and ran a very profitable business.

  5. Depth Charge says:

    The FED has succeeded beyond their wildest expectations over the course of the past 20 years. They have implemented policies which have led to vast fortunes for a select few, at the expense of society, which were unthinkable in the past. Worse, as if these pigmen don’t already have enough, they’re promising to do it on high ad infinitum. I do not believe there is any way to save this country at this point.

    • Ry says:

      What might you or a better leader have done differentely to prevent the country from needing to be “saved”?

      • joe2 says:

        Rational immigration policy, balanced budget, private charity, limited foreign meddling and rabble rousing and endless war, lower education including history, science, mathematics, and culture, end student loans and return to meritocracy, unify the different peoples in the country under one banner instead of sowing hatred and victimization, actual rule of law that also applies to politicians and oligarchs, encourage freedom of speech and informed discourse, term limits, abolish the Federal Reserve Bank and issue real money vice debt, abolish public servant unions, …

        For a start.

        • Shiloh1 says:

          The media said we’d be wasting our vote on that guy in ‘92 and ‘96.

        • w says:

          Sounds good.Would add luxury tax,no offshoring profits,and higher moral standards for the elected.They are Supposed to lead by example,not swindle and scam by stealth.Also,tougher reasonable antipollution standards=healthier,more intelligent pooulace.Police who actually Serve and Protect,not surveila,invade homes,and brutalize fellow humans! :-)

    • Swamp Creature says:

      By punishing savers and rewarding speculators the Fed will achieve the goal of suckering every single American into the casino. The next step is to create an America Corporate structure with 6 large global corporations, bankrupting and acquiring all the competition. The 6 large vertically integrated Corporations, like AT&T, will do all the dirty work the government used to do. They will be free to raise the prices of their services to whatever they want, and perform East German like survielance on every American. Freedom will be gone. Financial independence will be history. This is America’s future if we keep going down the path we are on. It’s time for the Peasants with pitchforks to revolt.

      • josap says:

        No one is going to revolt. Most people pay no attention whatever. A few pay attention and don’t care. A lesser few pay attention and get angry online.

        • MiTurn says:

          No, they’re waiting either for another stimulus check so they can delay going back to work or, even better, universal basic income.

          If offered, they’d vote it in. No one seems to understand the basics of economics, including our leading economists.

        • Wisdom Seeker says:

          T-Shirt: “Uncle Sam printed up $4,000,000,000,000 and all I got was this lousy INFLATION!”

        • Swamp Creature says:

          “No one is going to revolt.”

          Not quite. Did you forget Jan 6th, 2021

        • w says:

          Do not know who you jnow,talk to,or encounter but on some sites,it is all theu can do to Not start burning elite or govt. Buildings and killing the traitorous psychopaths.Americans are showing Great restraint because they know the bait and divide and conquer tactic,classic!

      • MonkeyBusiness says:

        Americans didn’t even revolt during the Great Depression and yet you are expecting them to do so now.

        ………

        • RightNYer says:

          A little different, in that the Great Depression wasn’t caused by government policies, nor were a select few profiting from it.

        • MonkeyBusiness says:

          I think we read different history books. We are repeating the same things that led to the Great Depression and yes a select few benefited.

          Americans would rather kill foreigners than face the truth. It happened before, it will happen again.

        • Swamp Creature says:

          When every lemming is sucked into the casino that will be the market top. There will be no more suckers left. They’ll all be fully invested. That’s when the crash will occur.

        • RightNYer says:

          Monkey, we had much less “diversity” then. It was easier to find a common enemy overseas. I don’t think you can compare 1930s American to 2021 America.

        • Lynn says:

          I expect quite a lot of mob violence and crime at the least. The worse it gets the worse it gets. They will try and give “free money” in bits and pieces to quiet things down for as long as they can.. Why else do you think they’ve been doing stimulus? Because they care?

          The difference is we don’t have an FDR right now. Instead of real infrastructure improvement we’re probably going to see a lot of money pocketed and invested in taking housing stock off the market.

      • drifterprof says:

        “By punishing savers and rewarding speculators the Fed will achieve the goal of suckering every single American into the casino.”

        Seems like not only the Fed. I’ve been thinking how last May, TIAA (a huge traditional financial insurance / retirement / investment institution) warned me that I was likely to start getting negative interest on my money market retirement account choice for my IRA. The memo seemed to urge me to invest in more volatile assets. This seemed a little weird. Since it a low percent of my overall, I put it into the “development” stock fund, and have made 10% since then.

        However, I prefer my state employee Colorado IRA (worked about the same time as Maryland, in the same job as instructor in a 2-year college). It accrues about 3% per year with very little risk.

        Strange how one financial retirement organization pushes you into risky investment, and another provides safe reasonable return

        • rhodium says:

          It’s low risk because it’s low interest. That most likely just means a high percentage blend of low yield vs a small ratio of low yield low risk assets. Either way, you are spinning your wheels against inflation, or at significant risk of losses in event of a crash. Find your middle ground. However, if the Fed is backstopping assets, there is no risk, so load up and risk it all baby.

      • w says:

        Where Have you been? What you detailed IS the America in which we luve.Corps. Run by a handful of elite families exercising too much power as they write bills for puppet officicials to pretend debate and sign.Freaking streetlights now surveil us,for realsies-research it.Our cars eavesdrop as do the smart tvs.Same few families own most of media including your precious kids’publishing+curriculum materials and sites.Talk in nwo plan of ceding large tracts of land to megacorp.so They become the govt.Corp. Creates rules,laws,fees,taxes,etc.=dismantling the U.S. Constitutional selfgovernment for privatized,no recourse corp. Enslavement enforced by robots.Not imagining this,look it up.

    • historicus says:

      It all changed in 2009, July…when Bernanke promised and explained QE was only temporary … and normalcy would return when unemployment dipped below 6.5%. The Dow was circa 10K. Unemployment went to 3.5%.
      QE expanded geometrically.

  6. timbers says:

    Picture the Wendy’s commercial of the old lady with a burger “Where’s the base, Jerome?” If only a financial reporter could corner Powell or similar Fedster with that question. Maybe the mostest wokedest of us all – San Fran Fed member Mary Daly -could stand in Jerome’s place and be interpreted from all those millions of jobs she’s so busy creating.

  7. wkevinw says:

    PPI is my favorite inflation gauge; less prone to all the “fudging”.

    However, its composition is also tricky as it doesn’t completely account for “total service” costs, e.g. education, legal costs, etc.

    Pay close attention when PPI moves. It’s especially telling when it moves for about 5 years. After 5 years, the inflation (or deflation) is “real”/secular.

  8. A says:

    As long as companies can keep forcing customers to pay the higher prices stonks will keep going up. Cash is trash.

    • RightNYer says:

      And where do you think customers will get the money to pay the higher prices from? Higher prices for necessities with the same amount of money to spend means less spending on luxiries.

      • TangoOscar says:

        Probably the stimmie check due about June or so.

        • RightNYer says:

          Haha, right. So the entire economy depends on PERMANENT stimulus aka UBI.

        • Tom S. says:

          Only if 4 dollars goes to the kings and queens for each dollar that goes to the serfs. The game plan has been give money to the rich, and some to the poor, until everything is more expensive. Truly remarkable.

        • joe2 says:

          You are waiting for the crappy Fed check like a mushroom? Move to NY illegally and get $27K in CARES money.

  9. Jack says:

    Be sure to call your Republican Senator to unite in opposition against Weimar Boy Powell (or an even more liberal candidate) for another FOMC term.

    FOMC chairs serve 4 year terms. This year’s hearings should be happening right as US inflation reaches a 10-year if not 20-year high. In 2011 Bernanke was just re-confirmed the previous year so he didn’t care.

    Republicans alone cannot block Biden’s nominee but if they unite in opposition, they can make Weimar Boy & the Democrats comfortable; they’d need every vote otherwise. And of course, use the hearings to tell the American people what is happening.

    The American economy could well end the year at 4.x% unemployment & 3.x% inflation and still no tapering QE or tightening, because Weimar Boy already promised Wall St low rates through 2024. Weimar Boy himself also owns tens of millions worth of SPY according to his financial disclosures. Complete insanity!

    • Wisdom Seeker says:

      1) What makes you think the alternative will be any better?

      2) In my living memory, neither party has ever reliably told the truth about anything.

      3) The U.S. Government is the world’s largest debtor and is in increasingly dire financial condition. One should expect the already bought-and-paid-for Senate to quietly but firmly require a pro-inflation stance from any new Fed chair.

      • Depth Charge says:

        I don’t see you mention anything about the horrific homeless crisis these policies are creating, the complete loss of a free market, the unintended consequences, the moral hazard, etc. Is that you, Weimar Boy?

    • MCH says:

      Ok, let’s be clear, Dumbos are not our saviors here, ok. We can use them for the moment because what they are good for is to oppose Joe cause he is Joe, remember, it’s the Dumbos that got us Powell in the first place and technically facilitated smiling Janet into the treasury position. Cause if she was running the Fed, she wouldn’t be running Treasury.

    • joe2 says:

      Who gave us Roberts on the court?

    • Happy1 says:

      I don’t think this is a problem of the political left, both parties have abicated their fiscal responsibility to the Fed.

    • Lone Coyote says:

      3% inflation? I’ll eat my hat if actual inflation is that low. (I’m sure the fed will cook the books to make it look like 1%.)

  10. Swamp Creature says:

    Groceries have gone up so much in the past few months that I am having trouble tracking the increases. Don;t exactly know which items are causing the increases. Don’t buy a lot of meat so its all in the price of produce and the non-food items. Spent 1.1K last month over the usual $900/month which includes non food items purchased at the grocery store. I am very careful to avoid wasting anything.

    Health insurance premiums jumped 9% over last year. Dental ins 5%.

    My guess is that inflation is currently running at about the rate of my Dental ins premium increase, since this company GEHA, located in Missouri are real frugal about paying out claims. If they are raising their premiums by 5% then this is the result of the inflation in their cost structure to run their operation.

    • Missouri Jon says:

      Our school district recently had a meeting with Schneider Electric, a group of energy efficiency experts who service primarily Midwest schools. They are conservative with their estimates because they operate on a strict commission – if the district customer doesn’t save money from their program, the company not only makes no profit, they actually have to make up the difference.
      Anyway, they go for long-term partnerships and plan out savings for 15 years, so when they presented us with this chart showing $2.3 million in energy savings for our district over 15 years, I asked them if they accounted for inflation and if so how much.

      They said they model for 3% annual inflation in construction and energy costs. It’s a figure they’ve used for decades.

      Although that number is still quite a bit higher than the hopelessly rose-colored CPI, I can’t help but wonder if they will get burned by this assumption in the near future.

      • Thomas Roberts says:

        The inflation for new construction will skyrocket (though it will shoot upwards slower), until it begins to collapse. After the pandemic ends for America, later this year, it’s unclear when the next recession will be. Given the spending so far, we will probably have record stimulus, until at least the end of the year and possibly until next summer at minimum. As soon as stimulus stops, we will likely see recession begin to enter preliminary stages, although the fed/government will likely have a crazy scheme to try to push it off until that always later date.

        Energy demand could easily fall, with all the office buildings being no longer in full use, however, fracking for gas (which is backed by loans that will never be payed back) is also suppressing energy prices for now.

        After the recession starts, at least until if large inflation happens, we should see the price for construction fall off. Commercial construction with the demand for office buildings plummeting, could easily cause Commercial construction prices to plummet far sooner, separately from residential construction (which also uses wood instead of concrete).

        All in all, it’s not something that I would career wise want to be responsible for predicting at this time. It’s possible that in order to get through the current time, they are not saying what they think will eventually happen or are just saying anything because they have no idea, it’s also possible that schools because of their necessity, will be forced to pay the difference in order to keep everything running.

        • RightNYer says:

          How do you figure the stimulus will continue into next year? Right now, enhanced unemployment goes until September. That’s all I see right now.

        • Thomas Roberts says:

          For now yes,

          After all the current stimulus programs end (which is also about the time, the pandemic will be wrapping up in America, for the most part); The question will be if everyone unemployed will be able to very quickly get hired. I’m guessing there will be alot of unemployed yet, also, many small and medium businesses have lost alot of money over the past 12 months and will be still in a financial hard spot. So more stimulus is definitely possible. It’s possible that unlike so far, unemployment will no longer pay more than you used to make. The stimuluses for businesses will be a lot harder to predict.

          I wouldn’t expect to hear anything about it, for at least a couple months. It may already be in planning.

          Many of those small and medium businesses though, could be hanging by a thread. It’s hard to estimate what percent of businesses are on the brink. Just because pandemic ends, doesn’t mean all those restaurants and other local businesses will suddenly get all their customers back. Even if alot of businesses got 80% of their old customers back, that may not be enough to keep them going. For some small and medium businesses, they have taken on alot of loans during pandemic and even getting 100% of old customers, might not be enough. Inflation has effected alot of them as well.

          Canceling certain federal loan debts like the economic injury loans may also happen at some point, though that may not be for awhile. That particular loan only has to be paid over 30 years.

    • Thomas Roberts says:

      Swamp Creature,

      I’m pretty sure alot of things like grocery stores (and their suppliers) are raising their prices, just because they can. When the lockdowns started, all the regional grocery chains, temporarily, suspended all their “sale” prices, except for ones already advertised. Since then they have brought back the “sales” but are slowly raising prices/shrinking actual amount of food you get (shrink-flation).

      I’ve noticed some things like certain electronics, especially ones on Amazon, raise their prices around the time the stimulus checks go out and lowering them back later. Some food and drinks (especially coke a cola) at the grocery stores are in a suspicious up and down pattern.

  11. Crush the Peasants! says:

    Clearly things like lumber and other inputs are much more technologically advanced than before, and so with a wave of the heuristics wand, POOF!, and the inflation is gone.

    • RightNYer says:

      Good point! If nice hardwood becomes too expensive, people will switch to garbage particle board made with asbestos and other toxins.

      So you see, it’s actually DELFATION! I love America!

      • historicus says:

        That’s exactly how the PCE … the index the Fed watches…works.
        Things that go up “too much” in price are substituted out.
        So ..get used to hamburger helper…without the hamburger.

      • nick kelly says:

        I would like to see OSB out of the building code AT LEAST for roof sheathing. Fact: years ago I finally had to reroof an old but solid house built in 1948. It had a second roof already on it so all had to come off. The sheathing was tongue and groove fir planks. There was so little repair needed to it they didn’t charge me.
        Today around here, once an OSB roof needs retiling, by law it must be re-sheathed. It’s not safe for a roofer to walk on. As a realtor decades ago, I’ve pointed to the underside of a floor and said: ‘see folks, genuine plywood’ We all laughed but plywood is like steel compared to OSB. No ply these days.

        Seriously, we would all be better off not using wood chips and glue for ANYTHING including furniture. People won’t even pick it up when its left out front.

        • VintageVNvet says:

          usually not going to get into this question NK, but,,, many years ago now, a friend who ”imported” tons of watermelons from GA told me the trailers he home made to tow behind his pick up lasted at least twice as long when made from same thickness of OSB than plywood…
          Many years ago, so suppose it possible that glues and process have changed…
          And, for the record, never trusted OSB or particle board farther than I could ( and did ) throw them,,
          And, to be even more clear, the last new house we built had ONE sheet of 3/4 ply in a corner where we did not think the steel strapping was sufficient to resist possible ”overturning moments” due to possible tornado force winds; otherwise, all wood was local timber, locally milled, including final finish flooring, paneling, etc.

  12. Doubting Thomas says:

    Great analysis (as always), Wolf. Thank you.

    Question: When will be able to separate “temporary” inflation driven by supply chain shocks from “permanent” inflation driven by money creation and other ongoing factors? What data will allow us to tease out the difference between temporary and permanent inflation?

    • Tom S. says:

      They asked the fed vice chair Clarida about that this morning on Bloomberg….his answer was basically there is slack in the labor market so supply will rise to meet demand and limit inflation. Looking at 2022 before even considering that the inflation is more than transitory. They also no longer trust their forecasts and will be reactionary not proactive with regards to inflation. I’m paraphrasing but that was the gist of it to me.

      Can’t wait to see all those jobs that this inflation creates! And if we’re lucky maybe some innovation too! Thanks loving mother Fed for all the hard work that you do.

      • RightNYer says:

        They’re full of it. They’re not being proactive or reactive, but trying to keep the market calm. Even if they end up tightening to control inflation, they’ll tell people they’re not. It’s all about managing perception for these guys.

    • historicus says:

      Temporary shortages are the first excuse for inflation.

      Who thinks that the coming supply will be priced the same as before?

      First inflation will be denied
      Second it will be painted as a good sign of economic activity
      Finally, the Fed will “limp in” with meaningless and ineffective 1/4 pt raises.

      Then…….disaster.

      • RightNYer says:

        Exactly. Has anybody ever stopped to think that perhaps the shortages, especially of things coming from overseas, are the symptom of inflation, not the cause? In other words, foreigners see our deranged printing and spending (and no, we’re not the cleanest dirty shirt), and realize “I don’t want to sell 1,000 widgets for $10 USD each, because I don’t WANT $10,000 USD that is being devalued daily. So instead, I’ll drop my production down to 500 widgets, and then charge $30 USD for each one. So I’ll make 50% more money and only have to produce half the product! Win win!

      • MiTurn says:

        “Then…….disaster.”

        I’m building an expanded deer fence to keep those oversized rodents out of recently expanded (3x) vegetable garden. I agree, disaster. Trying to be proactive in preparing.

        • VintageVNvet says:

          sorry Wolf, but feel obliged to respond to mit on this subject, of which we have had SO much experience in our last place on many acres of mostly hardwood forest, but 10 acres clear, etc.:
          Do NOT think that any fence, no matter how high, will keep out the deer… our mistake until we came back to our homestead and found the okra ( Longhorn variety ) within the 12,, twelve feet high fence around the garden had been ignored, and the okra and stems 6 inches diameter, gone to the dirt level, and everything else in that garden completely gone…
          New fence was ”hog wire” at the bottom, top 3 horizontal levels electric up to at least 8′ above, bottom wire electric at six inches,,, and dogs within, kept within by EL, barked at each deer and other ”vermin”,,, and never had another problem, except for those unfortunate critters that tried to dig IN or UP and found the dogs waiting,,, ( which vermin we had to get away from dogs before they ate them too much,, because of potential pollution of beloved dogs. )

        • Lynn says:

          Well, if there is a disaster, the way to get gaminess out of venison is to take it out of the freezer and defrost it in the fridge in a big bowl of water and a little vinegar. Change out the water for 2 days then soak another day in water and a little white wine. I then add a little soy, ginger, garlic and mashed mango. Or just chicken-fry. Delicious and tender.

    • Wolf Richter says:

      Doubting Thomas,

      Good question. No one knows for sure. And when it starts to happen and becomes clearer to see, it will be denied.

      When inflation expectations are rising, you know there’s going to be a longer-term problem. Inflation is partially a psychological phenomenon: People are willing to pay higher prices instead of going on a buyers’ strike. That’s why inflation expectations are tracked so carefully.

      • RightNYer says:

        Wolf, yes. Inflation is often a self-fulfilling prophecy. People believe inflation will come, and are not only willing to pay higher prices, but are EAGER to pay higher prices because they think prices will be even HIGHER later. And this belief causes the actions that leads to the price increases materializing.

        The disconnect seems to be that, while people believe inflation is coming, they also think the Fed will be able to control it. I see little evidence of that

        • sunny129 says:

          RightNYer

          The Fed has been always REACTIVE and NOT Proactive by history. They have been trying produce inflation sionce ’09! That’s the only way, paying debt becomes cheaper!

        • RightNYer says:

          Except it is backfiring, because if the point is to make existing debt easier to service, the policy is incentivizing new debt to be taken on at a rate faster than the old debt is being eliminated.

      • MiTurn says:

        “And when it starts to happen and become clearer to see, it will be denied.”

        Right on! Intentional disinformation.

  13. Avraam Jack Dectis says:

    .
    It is frequently stated that if, over the last four decades, productivity gains had been shared with workers in the same way as previous decades, incomes for the bottom 90 percent would be much higher.
    If those productivity gains had been shared, we would have experienced much higher demand, akin, perhaps, to what the stimulus provided.
    We would also have built out our productive capacities so that there would be no supply shortages.
    So while there may be some concern now over supply shortages, if we can maintain the growth the supplies will become available.
    That is the most important goal: increase supplies and GDP.
    In a third of a century, If we do not increase GDP growth, there is a good chance the China economy will be twice the size of the USA economy.
    That will change many dynamics, none that we will appreciate.
    .
    PS With all the previous foaming-at-the-mouth uncouth comments, I am wondering if they are made by bots or just professional hate bags.
    .

  14. MonkeyBusiness says:

    Muppets have a lot of money though, so no problems!!!

  15. Robert says:

    So is it time to buy TIPS?

    Or will the CPI that TIPS track always be so detached from real inflation that it’s not worth it.

    • eastern bunny says:

      Fed owns all the TIPS and isnt selling any to you. No one needs your devaluing cash,

    • The Breakeven rate is running way too high. Also you should be worried that real rates will continue to rise and inflation will not keep up. High interest rates are generally the palliative to inflation. Should rates break out ahead of inflation that might provide a damper. There is no way to target goods and services without affecting asset inflation. A little bit of CPI might send housing and stocks into nosebleed territory. The leverage in different categories of inflation means Fed has a problem. Money Velocity hasn’t moved at all, and 1Q numbers should be out, and that will tell them if anything is really happening. Fortunately yields aren’t really high enough to bother businesses, or the mortgage industry. They are high enough with 2% CPI forever, the make the BE on TIPS unattractive.

    • Finster says:

      TIPS are indexed to the CPI, not to inflation. The gap between the two is growing. And because so much of the government’s obligations, including TIPS debt, as well as SS etc., is indexed to the CPI, having the CPI accurately track actual inflation impairs the ability of the government to inflate away its debt. So the gap will have to keep growing or much of the basic purpose of inflation is frustrated.

      TIPS are widely recommended for inflation protection, but I am profoundly skeptical.

  16. Keepcalmeverythingisfine says:

    Global supply chain problems have been real, and it has driven up costs. However, supply chain problems are already starting to abate. The stock market did not move much this morning because this is all well understood. Inflation is also real and even at 2% will eat your savings at an alarming rate. If you are sitting on cash in low interest bearing accounts then you are getting eaten alive. I will preach again – start slowly metering cash into low cost index funds. Don’t just pile it all in at once, take your time and stay the course even through bear markets. We are eventually going to see a new currency (probably digital) that will make holding dollars extremely painful. High quality assets are better than cash when the inevitable happens.

    • Doubting Thomas says:

      In response to Keep Calm… After a lifetime of successful investing I have been heavy into cash since last June because I thought valuations were insanely high even back then. It has been absolutely brutal missing out on an S&P 500 run up of over 25%. I’m ready to toss in the towel and follow your advice of a slow but steady dollar cost averaging back into broad equity index investments. I am slowly and painfully coming to the conclusion that the biggest investment consideration of all is now inflation and that all ships will sink but at least companies will have the ability to raise prices in response to inflation. Any other holdouts on this forum ready to toss in the cash towel and get back into the equity markets? Can historically unprecedented equity valuations possibly hold up? Any other better approaches? Thanks in advance for all constructive thoughts.

      • lenert says:

        Maybe higher P/Es are warranted given all the tax, labor and regulatory advantages granted companies over the last 40 years, especially the last 20. Who’s going to stop them?

      • Old school says:

        I wouldn’t buy any financial asset unless I needed to take the risk to meet my goals. The low in 2009 was $666 so 12 years later you are going to pay $4000 for an economy in some way that has more problems. Cash, pay off house, buy gold, silver. If I needed to own stocks I would keep percentage very small unless I was under 45 years old.

      • Anthony A. says:

        I’m 77 and retired with about 20% in equities (mix of quality preferred stocks and a whole market equity index fund). The rest is cash and was treasury bonds last year but I dumped them all. I’m like you….can’t believe this market can keep going up and on. And there is nowhere to put cash for any return.

        I can’t afford to lose the retirement money as no one will hire me to make it back! What I am going to do is slowly blend some of the cash back into the index fund (ETF) and wait for interest rates to rise so I can lock up some CDs with some of the cash (if that happens). As long as the country and/or currency doesn’t blow up, I want to be around 40 – 50% equities at our ages (both looking at 80 now) and the rest making some interest.

        We have no debt (paid for house) and have costs somewhat under control but healthcare is costly (Yeah, Medicare and a supplement insurance policies are not free). And then there’s the Part D drug plan…Oh, no dental coverage under Medicare.

        I worry about having enough for long term care if one of us needs it someday.

        • historicus says:

          Anthony and Old School

          We are all from the same era.
          We grew up with savings accounts that yielded more than inflation.
          People could save their way into some type of prosperity, stability…then start to invest. Now people invest out of desperation.
          People who have their nose to the grindstone, create products and services must wonder how they fall behind those who get up in the morning and wonder “how much higher will the stock market be for me today?”
          It cant last.
          Something must reign in this Federal Reserve which has gone completely rogue.

        • MiTurn says:

          “And there is nowhere to put cash for any return.”

          Silver, if youhave patience and can get it.

        • Wisdom Seeker says:

          @Anthony – Preferred stocks aren’t stocks. They’re supremely subordinated bonds, the first to get slaughtered after the stock itself.

          P.S. All of you investing in “whole market” stock funds are co-owners and enablers of all the monopolistic fiascoes that we’re all complaining about. If you have to buy a stock fund, at least go for the small or mid-cap funds. This is roughly equivalent to always voting against the incumbents in the elections (so: not much) but if everyone did it, it would at least it send the message to the big boys that it’s time to change.

        • Swamp Creature says:

          I heard a clown on CNBC, Jim Cramer, say that it was time for everyone to own stocks and get into the game. If they didn’t they were guaranteed to lose their entire nest egg. He actually said this with a straight face, “gamble or lose it all” . Its a binary choice.

        • RightNYer says:

          Cramer is another one that thinks there’s such a thing as “cash on the sidelines.” If people go “all in” where does he think that cash will go? To the sellers. At some point, SOMEONE is holding cash.

        • Anthony A. says:

          W.S., Thanks for your input, but I know exactly what preferred stocks are and have a small portion of my portfolio (<10%) of 5 or 6 cumulative issues of very solid companies. Yes, they crater if the market goes south, and did so in 2020 at which time I added to my issues at $10 + below par. And now they all sit a few dollars over par. I expect calls on most of these over the next couple of years and so be it. I hold issues from utilities and farming co-op's.

          This past year, I had two issues called and expected that. Most of my preferreds are paying 4 – 5%+. I do not buy convertible issues or any crazy stuff with a non-cumulative dividend. I have been researching and buying these units for years.

          My preferreds are held in my IRA.

      • Doubting, look at momentum indicators for the stock market now, it is starting to fizzle. Surging inflation and rising bond yields to compensate for this steep trend reversal in producer and inevitably consumer prices has historically never been a good time for buying stocks. Valuations have only gotten worse since your June hiatus. Look at tangible assets well outside of the financial system. This system and economy are teetering on the edge.

      • John says:

        DT,
        Dividend paying stocks, check out every month. Still 6-10% yielders. BDC’s, business development co’s, reits. All inflation related, reits anyway. Cash flow is what counts. Thanks Wolf.

        • RightNYer says:

          Those dividend paying stocks will drop at the same rate as the non-dividend paying stocks when the crash comes.

        • Wisdom Seeker says:

          @RightNYer – but with the dividend-paying stocks you have at least some hope of making your money back over time. If you don’t ever sell, the only question is whether you paid a fair price for the return you will get.

          Many of the bubbly “growth” stocks are trading at P/E multiples up to infinity, with minimal earnings and no dividends. Most of those will never recover from the next crash.

        • RightNYer says:

          Wisdom, true, but whatever event caused the drop will also likely cause the company to reduce or eliminate their dividend?

          Don’t get me wrong, there is merit to your idea, but it’s not foolproof.

      • Rowen says:

        Equity valuations don’t matter. Price is just a reflection of the supply and demand for stocks.

        I think most people underestimate how much the huge increase in equity inflow is the result of the ease of investing today, so that even my 11 year old nephew buys stocks on his phone.

        Want a market correction? Bring back stock trade commission and eliminate fractional share purchasing

        • RightNYer says:

          Right, but why stocks? If they’re just going to be traded as collectibles divorced from valuations, why not art? Why not baseball cards?

      • Uncle Salty says:

        Doubting Thomas,

        What ever you do, don’t hold onto index funds or stocks in the event that a bear market should come about. Cut your loss short. Who knows how low this overbought market might go?

        Take a good look at a monthly chart of SPX, going back to 2009. That is what you are buying into, a stock market that has been on a tear since 2009! And all based on nothing more than massive government debt and low interest rates.

        And when you see that massive uptrend, realize that it is your greed compelling you to buy into it. Don’t do it!

        For Pete’s sake, at least wait for a plunge and buy into that plunge when there is weeping and gnashing of teeth. One thing is certain, when the stock market plunges, the PPT (Plunge Protection Team) will step in, as they have always done, each and every time the market has sold off, since the 2009 bottom.

        Many commenters have been opining as to what the next catalyst will be that will cause the market to tank. No catalyst needed. In truth, the market is being distributed on the way up. Strong hands distributing to the weak. It’ s a long a drawn-out process because there are so few weak hands left (think retailers). But surely, the distribution will reach a point where the weak hands are left holding the bag and hence, the ensuing sell off. It has to be that way for Wall Street to survive and has always been that way.

        Do not bet on what you see (the present and the past) but on what you think the future might be. After all, that is what you are betting on, the future! By low sell high. But in order to do that, you need to first see a sell-off in the present. As of today, the market is in rally mode, with SP and Dow logging new highs and the Nasdaq not far behind.

        Just promise me that you’ll be patient and will never buy high! Dollar cost averaging is a great idea for those who don’t believe in timing (I’m not one of them) but do it on the way down, not on the way up.

        Q1 earnings season is upon us, at least wait to see how the markets respond. My measly 2 cents.

    • jrmcdowell says:

      “However, supply chain problems are already starting to abate. The stock market did not move much this morning because this is all well understood.”

      The stock market movements have nothing to do with participants’ understanding of supply-chain problems and everything to do with believing that the Fed will be there to backstop the market at all costs.

      And (despite this blip) their confidence that the government-sponsored BLS will manufacture numbers that essentially broadcast what a great job the government is doing with the economy (i.e., low inflation, low unemployment, strong GDP) which will continue to provide cover for the Fed to continue with its market-inflating operations.

      • historicus says:

        “supply chain problems are already starting to abate.”

        GM shutting production without needed chips.

        The supply now coming is going to be “repriced” up……dont you worry….

    • sunny129 says:

      Keepcalmeverythingisfine

      ‘I will preach again – start slowly metering cash into low cost index funds’

      All the future demand has been already brought forward and then some!
      Not discounting the future cash flow, you are paying premium which will NOT justified, but obvious, only in retrospect. But again, it could be different this time, right?

      (

    • dr_doomz says:

      Keepcalmeverythingisfine:
      “supply chain problems are already starting to abate. The stock market did not move much this morning because this is all well understood.”

      Well, nobody sent the memo to Mr. Lumber because it’s up 30% in less than one month.

  17. qt says:

    I noticed all the restaurants that are opening up are doing so with much higher prices. I usually go to this AYCE Sushi place that had lunch for $24.99. Everything is cooked to order but you have a 2 hours limit to eat. The last time I ate there in-house (not takeouts) was Feb 2020, right before the Pandemic. Now, they just opened up a few months ago for in-dining and my wife called them for price. It’s $31.95 (lunch price) for pretty much the same food. It’s a good thing food prices are not captured in the CPI. However, the producers are definitely passing the price increases to the consumers. My wife told me she does not want to go anymore. I will just take out a few poke bowls.

    • Jesse says:

      Actually, if a large percentage of people balk at the increased prices (because their wages haven’t increased) and cut their consumption, then these increases will be sort lived. Demand will drop, and businesses will need to lower prices or figure out a way to survive with fewer customers.

      Alternatively, margins get squeezed and the weaker businesses go under.

      • dr_doomz says:

        “if a large percentage of people balk at the increased prices”

        No one is balking at the increases. Incomes are up dramatically. The menu item increase is 27.8% and will likely go higher. UBI will do that.

        • RightNYer says:

          Yes, but incomes are up dramatically and not in a balanced way, so a lot will be hurt. And even if UBI is implemented, people will just be back to square one if the benefits are inflated away.

    • Tim says:

      Heard a workman claim that he got a great deal on lunch from a deli.

      “Sandwich, chips, a soda and a bottle of water,
      for only nineteen dollars!”

      Probably more than he took home per hour after taxes.

      • RightNYer says:

        Are you sure he didn’t say “Nine?” I’ve been to many overpriced delis unfortunately, and I’ve never seen anything quite that ourageous.

    • Depth Charge says:

      I rarely eat out. It is expensive and mostly disappointing. I make much better food at home, and the price is like 1/10.

      • Swamp Creature says:

        We’re now cooking home much more than before. Eating out was done to save time and get a break from working. Not much fun anymore. My favorite places have all closed or are going to take out only. That;s not much fun either. You have to pick the stuff up, it gets cold by the time you get home and then you have to dirty a bunch of pots and pans to heat it up and later the dishes, so you haven’t gained anything. We’ve got a couple of Irish pubs that still provide a good dining experience and have done so throughout the pandemic so we continue to support them even though it has gotten pricier. I’d say 20% increase in prices have occurred. The people that go there don’t care if the prices go up. They pay up. Same with us.

      • Old school says:

        Yep. I always am thinking why am I paying this guy’s cost structure to fix me a meal. I have all of the expenses of a kitchen at home. It’s definitely a luxury unless you are so specialized that you can be making a lot of money instead of saving $50 cooking.

        • Look at the money put into kitchens today, either via the New Home purchase, the Existing Home purchase, or the home improvement extravaganza. I would guess the average kitchen today is north of $40,000, something unheard of when I was growing up (as percent of total dwelling).

          With that much money investing in a small space to prepare and keep food, how can one justify on top of that outlay from Day One the cost of spending thousands of dollars per year eating out. Ancient Rome saw the columns of extravagance come down around its head. Plus, I agree with many above. I can prepare better tasting, healthier food at home that at least I know what is in it and where it came from and how fresh it really is.

        • Swamp Creature says:

          It was not cost effective to do our own cooking. We essentially outsourced this function in order to be more productive in the field. The Indian restaurant that we used to go to nearly every day served very healthy food for 2 for a total cost of less than $30 for the two of us. Mostly vegetarian and rice based. Since we stopped going there we’ve double our cost of eating out, now $60 for two, and saved nothing by cooking at home when all the costs are considered. Our time is worth $50/hour. I spend at least 2 hours a day chopping up vegetables and doing all the other crap to prepare a healthy meal. Do the math. We got screwed.

        • Swamp Creature says:

          This is a sign that inflation has gotten completely out of control. When I go out to my favorite place, one of the few that is still open and safe to eat, and serves good healthy food, and because it is all outside, I could care less if the prices have gone up 20%. I just have a nice Bud light with the meal I just pull out fake currency from my wallet and pay them and then tip the waiter 20%, and go home happy and fully satisfied, am glad that I had a chance to support my local family run business, listen to some good Irish music. A lot of people are doing just the same thing as the place is starting to get crowded during the peak times. If you read the history of the Weimer Republic, the same behavior as I described above infected the population of Berlin during the early stages in 1922 of the hyperinflation. History will repeat itself and we are in the early stages.

          Enjoy

      • kig bnockers says:

        this

    • josap says:

      In Metro Phx, the places we enjoy having dinner/lunch at have raised prices by about 25%. The food we normally purchase at the store is also up. Our comfortable retirement is going to become a bit uncomfortable at some point in time.

    • historicus says:

      qt…
      exactly. The reopenings are samplings of what every industry is going to do…..charge as much as they can. New supplies will be “repriced” to the current conditions.
      Not until pitchforks and torches at the doors of the Federal Reserve will this change.

  18. Duane says:

    I’m a “Dee Downer” who really wishes that we could at the very least get healthy pullbacks every now and then in our financial markets. Even when the economy was starting to shut down last year due to the pandemic the equity markets only suffered their shortest bear market in history, it was gone in a matter of weeks. Now we are at record highs in many assets. It seems the only thing that will stop this madness is a dollar crisis. Who the heck wants that? (Other than this country’s enemies?)

    • Old School says:

      You never know, but I don’t think 2020 was the bottom. I tried to buy some stocks but the things you could reasonably value never got crazy cheap. In 2009 things got crazy cheap.

  19. Petunia says:

    I usually only buy items on sale, but lately there has been very little discounting. For the real test I checked out a few fashionista videos. They are complaining about the constant price increases and some are saying, “don’t buy, it isn’t worth it.” This is the first time ever I am consistently hearing this, although it is true more often than not. Some are even downgrading to more affordable options. Things must be really bad out there.

    In my own case, the more I spend here, the less I will spend there. Inflation for us means we buy less.

  20. Tim says:

    As every new set of inflation numbers come out, the “Preemptively purchase four years of consumer spending to promote the BidenHarris Depression” accumulators have the last laugh, once again.
    Savings on what they would have bought later are a nice tax free return on their money.

    The longer they wait to sell their unneeded items at a price still way cheaper than retail plus taxes, the better price they will get for them. Supply side baby!

  21. Yort says:

    As the Global Food Cost Index approaches the 2014 decade high, I wonder how many people will suffer from our Federal Reserve Monetary Dic-tator? The last time a single person tried to control the entire world’s financial system, that did not end well.

    J-Pow could literally starve millions of people in poor countries, due to his attempt push massive inflation across the globe. Are 2,000 billionaires obscene net worth-worth starving billions of poor third world country humans, for the sake of our Fed’s cultish “InFlaTioN is God” mantra???

    Does “Corporate Capitalism” have an ounce of humanity left at this point? When is enough-enough???

    Per Bloomberg – Global Food Cost Index Chart:

    https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iT_8yy8rhOp4/v2/pidjEfPlU1QWZop3vfGKsrX.ke8XuWirGYh1PKgEw44kE/919x-1.png

  22. SocalJim says:

    Next comes the slow GDP growth witrh inflation.

    • Swamp Creature says:

      SocalJim

      That’s the Jimmy Carter economy on steroids.

      The “Gipper” once called the Jimmy Carter economy

      High Inflation, rising interest rates, low GDP growth, rising unemployment, coupled with an energy crisis and gas lines.

      The Gipper said it was an economic stew and it was turning the nation’s stomach. Best line of the campaign.

  23. YuShan says:

    It will be interesting to see what happens when the stimulus runs out and when people have to start paying rent and mortgages again.

    Al this “stimulus” have added much more income than was lost during the pandemic, so no wonder that prices run hot. Are we going to see incomes rise when stimulus ends?

    • RightNYer says:

      And that’s exactly the problem YuShan. The level of consumption made possible by the “stimulus” is now the baseline, such that any decrease in consumption (and consequently, decrease in profits) will be seen as problematic.

    • Lynn says:

      Food stamps and food supplies to food banks have also been increased as part of the stimulus. In some places they have been doubled for the short term. Meanwhile the price of food is rising. I have the same thoughts about people being able to afford food when the stimulus runs out.

  24. Sir.PiratePapirus says:

    In 2008 there was a similar increase in the PPI, and by 2009 the whole episode had disappeared from the memory of everyone. Today’s increase even though on a month to month basis a larger increase than in 2008, is no different. Then, oil prices where responsible for a large part together with copper and other base metals that where making new highs at the time, similar to today with a slight exception of oil.

    • Tom S. says:

      08-09 was just a transitory recession.

      • Sir.PiratePapirus says:

        So is this one, and every other recession. If they where permanent then they wouldn’t be recessions but extinction level events, at which point inflation would be the last worry on anyone’s mind.

        • Tom S. says:

          True, I guess my point was more that people can get hurt very badly even during a transitory event i.e. the bullet passing through him was only transitory.

      • Wolf Richter says:

        Tom S.

        This is why I love the comments here.

        Now I gotta get some paper towels and wipe off the coffee I spewed all over my screen and keyboard.

    • historicus says:

      starting in 2009 we began the FEAR OF DEFLATION era…
      that’s all we heard..
      The CPI was 214 in 2009 and it is now 263
      about a 25% jump…

      • Old school says:

        Best explanation I have heard is we are in a natural deflation period being fought with all means possible by Federal Reserve because the cryptonite is deadly to a banker.

  25. Paulo says:

    We always call Friday night dinner, “pub night”. It refers to when we would often meet up after work on Fridays for a pint and some wings before going home. Now, we just try and make it something fun to do.

    Tonight’s menu, steak bought at 30% off list for the barbecue, fried onions and mushrooms, spuds from the garden, and a salad from the greenhouse. About 15% of what it would cost if restaurants were even open for dine in.

    And yes, I have my own pub with a good slate pool table. I converted a small machine shop into a post and beam pub…then added on to my new shop to replace it. I bought the pool table about 20 years ago from Craigslist, for $700; plus 8 friends and two trucks to help get it home. XM tunes and great Friday night fun whenever we want. For the price of two pints at the pub we get the full meal deal. :-) That is what inflation wrought. It is simply too expensive for a workingman to continue old habits once considered a normal lifestyle.

    • MiTurn says:

      And no masks, I presume?
      ;)

    • Tamara says:

      Near where I used to live in L.A. was a two car garage on an alley that Nick, a local plumber, had converted into a his parts storage and a bar. Every Friday night he’d open up the door and invite the local neighbors who walked over with their own libations. Inside were sofas he picked up off the street and steam cleaned, (no cooties), a couple free refrigerators, a coffee machine, a dumpster dived stereo.

      The cops drove by and greeted everyone to do their duty. A great time was had by all. There is no law against this as long as you don’t sell anything, donations acceptable, provide alcohol to minors, or allow people to drive away drunk.

      So folks, is there some reason that you can’t do the same thing in your neighborhood?

  26. Tim says:

    Just to play devils advocate, if you draw a line through the two periods where there were no extreme movements, today’s value is more or less in line with where things would have been. No?

    • Old school says:

      Someone smart said you ought to just forget one year comparisons and compare to two years ago and then annualize it.

    • Wolf Richter says:

      Tim,

      I don’t think so. I drew a 10-year line (green) and a 2-year line (blue). BTW, the drop in 2014-2016 was due to the collapse in oil prices, from $110 a barrel to $26 a barrel of WTI. Now we’re at $59 a barrel.

  27. Les says:

    Because of the one-off games they sometimes play with the adjusted numbers, there’s no way to draw much of a conclusion other than perhaps a minor surge. There has to be repeatedly high figures.

    There seems to a lot of borrowing but very little debt being added to the debt to the penny figures. The monthly purchase amounts are easily able to accommodate much of the increase since the election. Perhaps the 315 billion euro TLTRO announced two weeks has more than made up the difference.

  28. Cashboy says:

    Gold seems to be the only commodity and asset that has actually fallen.
    Logically, with all the printing of money and negative interest rates, one would think gold would be soaring up in price against the US dollar.

    • Ron says:

      Gold is manipulated as are stocks houses crypto pick your poison

      • Ron, totally correct about the manipulation of both Gold and Silver via futures contracts on the Comex. The CFTC and the Fed are implicit in the look-the-other-way schema as insiders that contribute mightily to the Establishment are allowed to amass short futures positions in both precious metals way in excess of the physical available on the exchanges for delivery on any settlement date. Goldman Sachs and JP Morgan, two financial squid of historic magnitude who have trading manipulation fines in the $100’s of millions already, come to mind.

        But as the day comes closer and closer where legitimate buyers of both Gold and Silver via the futures contracts can no longer receive actual physical precious metals in settlement, the Comex and other illegitimate exchanges will cease to function as true commodity exchanges. Trading will go elsewhere such as Shanghai and Dubai, and the physical price will begin to reflect actual supply and demand fundamentals, which today are at historic demand levels.

        When the Perth Mint in Australia cannot fulfill contractual demands from storage clients for delivery of silver, in a region of world-class mining operations, you know that a severe shortage of metal already exists. This is just one example of precious metals shortages, and monumental ones will be disclosed as the weeks progress.

    • Rowen says:

      All th libertarian goldbugs moved to crypto.

    • MiTurn says:

      Buy it! It will rebound big time…if things continue as they are.

      But physical only. Still, “they” might end up confiscating it anyhow, like FDR.

  29. Ron says:

    I figured out what transitory means higher prices more taxes transferring more money to govt people will be forced to cut back is that not deflationary with 61 % working percentage where will rest of people 39% live eat after stimulus ends even rich are saying this won’t end well PREPARE!

  30. Depth Charge says:

    The stock market blasted off again today. Joy…

    • RightNYer says:

      Almost all in the last hour though. It’s becoming a predictable joke. I actually made $80 on TQQQ that I held for 45 minutes. I’ll buy some dinner.

      • Yort says:

        Speculators have learned to front run the cash open and cash close, when retail funds are purchased via 401k’s, etc. Note the 10 pt SP500 emini collapse after close, as the speculators cashed out their 20 point gain EOD.

        Also note the “Stock Market Index” (SPY, IVV, etc market index ETFs) are what really went up today. Most well diversified portfolios, if owning bonds, precious metals, etc…basically did well if they broke even today. The passive index ETFs continue to climb higher almost daily. Being active and well diversifed…not so much. How long this lasts, how long passive investors can keep up the good luck…well until the fat/big boned lady sings I guess…TBD…

        • Wisdom Seeker says:

          Note that the big indexes, and their index funds, basically sum up all the monopolistic behemoths. How can anyone, who knows the evil those corporations do, choose to buy those funds? Or sleep at night afterwards?

          So many people here say they boycott so-and-so, but then buy the stock through their 401K or IRA via the “index funds”!!

        • sunny129 says:

          How long this lasts…’

          until the punch bowel is taken away but Powell has guaranteed that he will keep on, refilling it, as necessary!

          The GFC strated with a crack in the credit mkt ( first Bear Sterns and the Lehman -2008). It will be more or less same but where does spark begin?

          There are 10,000 offices (Arhgos?) in the world. They bet on the stocks, without owning them!? We had a one blow out last week.
          Will it be default in one of the country sovereign bonds in Europe? Transient inflation getting out of control?

  31. Rowen says:

    Ranchers getting paid less, but retail beef prices go brrr.

    Timber price up ~20%, but lumber prices up 300%.

    As Buffett says, you’ve got to own the bottlenecks with Big a$$ Moats.

  32. Yort says:

    Peter Schiff summarizes Inflation:

    “You have to remember that inflation really is nothing more than a tax. Now, when the government spends money, they need to get money. The public has to pay for it. Normally, the government would raise taxes, and then the taxpayers send money to the government, the government spends it. But we just passed a $1.9 trillion stimulus bill. Nobody’s taxes got raised. But we don’t get all this government for free.”

    “The Federal Reserve prints the money and then the government spends it into circulation. But when that happens, the value of all the money that’s already out there goes down and now the price of everything that you want to buy goes up. And that added price is basically the inflation tax.”

    “This is a massive amount of money printing. It’s unprecedented inflation because it’s the money supply that is being inflated. And as a result, everything costs more, because we’re not producing more. It’s actually the opposite. Americans are at home. They’re not producing goods and services. Yet, we’re creating more money to buy the goods and services that fewer people are producing. More money, fewer goods. Prices are just going to keep going up and it’s not going to stop.”

    “But I think to everybody that lives in the United States, it’s not going to look pretty. And the real problem is the Fed. The Fed pretends that it’s transitory. But when they have to admit that it’s not transitory the inflation rate will be far too high for the Fed to do anything about it. Because if the Fed actually raises rates to fight inflation, they’ll create a much bigger financial crisis than 2008 and the US government will be forced into insolvency.”

    • Wisdom Seeker says:

      @Yort – the money-printing inflation is even more evil than in Schiff’s summary, because the printed money is never evenly distributed. It’s not like everyone suddenly has $2 instead of $1. Instead, it’s like some poor people get $1 extra, but as soon as they spend it the rich people jack up the prices and harvest it all as profits. Meanwhile the most productive workers get nothing extra. But they will know the value of their labor has plunged whenever they buy anything and realize how many hours it took them to pay for it.

      Same thing applies to the whole minimum-wage business. It doesn’t matter what the minimum wage is in dollars. It matters what minimum wage is in gallons of milk, gallons of gas, sensible clothes, and rent. If minimum wage goes up 20% but the cost of everything goes up 50%, only the profiteers win.

      The best way to bring the country back to solvency, and bring living standards up, is for people to quit squandering. But for that you need accurate free-market prices (without monopolistic gouging) so people can allocate resources intelligently.

    • historicus says:

      “And the real problem is the Fed.”……BINGO!

      They promote inflation when they are mandated to stop inflation.
      They promote record low long rates when they are mandated to promote moderate (not extreme up or down long rates)
      They digitally mint, not for temporary bank liquidity per their purpose, but for Macro MMT purposes.
      They impose a tax on the citizenry when only Congress has that right, and Congress must answer to the voting public.
      Who has Representation on the Fed? Yet they tax us!
      Taxation without Representation….ring a bell?

  33. Is there a difference between “inflation” and price gauging?

    There should be. Inflation is when a currency loses purchasing power. Price gauging is when industry leaders collude to jack up their prices.

    If there is a difference between “inflation” and price gauging, how does a so-called “inflation index” tell them apart? It can’t.

    In light of all the deflationary pressures in the REAL ECONOMY, this is price gauging. Welcome to trickle down criminality.

  34. Fat Chewer. says:

    Wolf, this page suddenly decided to reload itself in the middle of typing a comment. Could you look into the cause of this please?

    • Swamp Creature says:

      FC

      What platform are you running it on? I had some performance problems with Win 7 on older model CPU’s, pre 2016. They went away when I upgraded to Win 10 on recently manufactured machines.

  35. MiTurn says:

    1970s again, for those of us old enough to remember?

    • MiTurn, it may develop into a much worse situation than the 1970’s where I waited in line for a tank of gas for hours and Nixon, in all his wisdom, applied Wage & Price Controls which only made the inflation worse when they were deemed unenforceable. WE HAD A FRACTION OF THE TOTAL DEBT BACK THEN VIA ANY METRIC AND THE FED WAS NOT A ROGUE ORGANIZATION THAT WAS PRINTING MONEY BANANA REPUBLIC STYLE. No offense to bananas.

      • David Hall says:

        Nixon took us off the gold standard. He left the White House in the middle of his term due to a scandal. His vice president was arrested for bribery. His next vice president became president as Nixon retired to his mansion. Gerald Ford had a WIN campaign. That means, “Whip Inflation Now.” It has been inflation most of the years since.

        • Dan Romig says:

          David,

          I made a comment in the ‘Yellen Calls for Taxing Large Corporations …’ about my college Econ 101 Professor, Walter Heller.

          Two things I left out about this remarkable man: he initiated LBJ’s ‘ War on Poverty’. But he also warned President Johnson not to escalate the Vietnam War without raising taxes, as it would be inflationary.

          Johnson did so despite Heller’s warning; so Heller quickly resigned and walked away.

          Nixon took over at the helm without changing policy, and with the help of the French & General de Gaulle (amongst others), we said good bye to having our fiat backed by gold.

          My mom & dad saw the writing on the wall. So in ’69, they bought a piece of land in southwest Roseville, MN, and had a mid-century modern home designed and built in summer of ’70. What was a large mortgage for its day, soon became easily paid off, and a nice amount of equity – that the family got to live in – was built up.

  36. Cobalt Programmer says:

    I believe in something

    1. Whatever bad that can happen to an economy has already happened. Everything now is just an icing on the cake

    2. Except Bill Clinton or Andy no president ever had a surplus/paid off debt. Debt to GDP ratio matters at anytime.

    3. Did your gut told you something is off but everyone tells you its OK? Then you got that divorce papers. I have the same feeling…

    4. Even if depression /GFC recession happens its not something new. We handled them like the kings. WW3 or NIRP.

    5. Common man just eats cheeseburger and plays lotto. Yes, the fast food burger went couple of dimes. But still we have the burger. I got the lotto. Bread and circus is too cliche…

    6. What you will do?

  37. The secret worry (heading into earnings) is a second recession. The fear is the blowout numbers won’t be such a big deal, that pent up demand ends with the last round of checks, and that from here on out things get smaller. Wall St tries to play it either way, the economy slows, banks get QE forever. The economy picks up, corporations make more in sales, (as long as labor doesn’t put too much pressure on earnings). So the Fed purposely jawboned them into their favorite position, betting on sluggish growth, and loose monetary policy. Powell even coded the message for them, “this is not the same economy we had before..” He means to say no more tight labor markets, and business has pricing power. Business used the Covid lockdown to automate more positions. The stock market is on a tear. Just don’t believe that those prices will get passed on through CPI, while core CPI, food and energy prices remain muted. I go the grocery too, and I haven’t seen price hikes. In the old economy food and energy costs went up, but the cost of flat screen TVs offset them hedonically. Now corporations will raise the price of TVs, while food and energy hold down inflation. The changes are all coming from China. They are no longer manipulating commodity costs (you thought that was inflation) Copper prices disconnected months ago. They are going to pass on the costs, and raise their standard of living. We gutted American manufacturing, it will take decades to be competitive again, and facing commodity prices already way too high. The rise in inflation in discretionary consumer goods will only be of a slight impact but enough to send us into a growth recession, like when GM used to raise the price of their new cars back in the day, the same time frame guys like Larry Summers keep channeling, late 60s and 70s. The labor union in Bejing has a new contract.

    • historicus says:

      ” but the cost of flat screen TVs offset them hedonically.”

      Something you buy every 10 years goes down in price while things you must pay for monthly soar.
      The flat screen tv example is one displaying the flawed metrics of inflation measuring.
      Flat screen tvs are the new bottle cap example….
      First bottle cap cost 1 million to make, the last one made cost less than a penny.

  38. stonedwino says:

    I’ll venture to guess that the vast majority of the current inflation is coming from ‘Pandemic Dislocation’ and serious shipping issues that have raised all shipping costs across the globe…for now. The fact that most of the world is not yet even getting vaccinated, tells me we’ve got a ways to go before the economies ‘rebalance’…and we get shipping back to some form of normal. Pandemic changes in shopping patterns have also dislocated pricing in certain areas, again to be seen if it sticks or is transitory.

    • Happy1 says:

      Worldwide shipping has nothing to do with the cost of higher education, health care, insurance, or restaurant food, all of which are up at least 5% year over year. Shipping glitches are an excuse the press uses to cover inflation.

  39. Hernando says:

    forbearance, moratorium, and stimulus… did I forget something? Oh yes, everyone is a business genius.

  40. Hernando says:

    8 bucks for a 2X4? This is not normal and won’t remain… I can only imagine sooner rather than later.

    • Anthony A. says:

      Nine dollars here yesterday. Crazy. And they looked like bananas. Hmm…., that seems to fit our form of government.

      • Hernando says:

        It’s a sign that all this is not real. 100,000 dollars next year will still be close to 100,000 dollars in buying power. And I bet it will buy a lot more bitcoin and tesla in 2022 than today.

        2X4’s too

  41. Swamp Creature says:

    Some of the Inflation is hidden in the degradation of quality. I don’t think that is being measured fully. Example: most if not all the new homes being built in my area are mostly a pile of frame tinderboxes, where the builders use the cheapest materials possible. The windows are the most energy inefficient on the market and leak energy left & right. Some homeowners move in and immediately replace all of them for more energy efficient items. They have to shell out 20 grand to do this. You see major contractors with multiple trucks coming by to replace all the defect in the construction of the houses. I’ve talked to some of the owners and they’ve spend 50K or more just to fix the defects in the original construction. The new house next to mind had their entire basement built below the water table and wound up with 8 feet of water in their furnished basement. They had to throw it all out. The owners moved after 1 year and took a loss. I wonder if this poor quality of construction is figured into the Inflation indexes.

    • RightNYer says:

      Truthfully, if I was a builder, and I saw that there were idiots lined up around the block to get into bidding wars on houses they were waiving the inspection contingency for, why WOULDN’T I use the cheapest materials possible? You’d be stupid not to do that!

      • josap says:

        Ethics.
        Pride of workmanship.
        Offering good value for people earned wages.

        • Swamp Creature says:

          josap,

          There’s no pride of workmanship anymore. You’re dreaming.

        • RightNYer says:

          Sorry, but at this point, after we had an election where people blatantly voted themselves $2,000, it’s every man for himself. There is no community anymore. Anyone who worries about anyone else will be the sucker.

    • Used to be a reality TV show, contractor went into homes which people had just bought, and exposed all the flaws, usually problems inspectors should have noticed. He then showed them the bill to bring things up to code, and it was always a jaw dropper. The show only lasted a few seasons, a real downer when you can watch one of those house flipping shows where everyone comes off like a winner. I recall one of those programs where the guy and his wife bought a house at sale, without inspection, found out later the previous tenants had poured cement into the plumbing. They managed to convince their insurance company it was vandalism, and they paid the bill. It’s institutional corruption. Now the Biden admin wants to induce local government to ease up on restrictive zoning laws, while the problem is code enforcement on house flipping, where the bottom line is a new appraisal.

      • Lynn says:

        If they actually ease up on zoning laws it might help a lot out west. We have a lot of areas where the minimum acreage for a home is 5 to 20 acres. Not always much reason for that. They will probably just play keep away though.

        Fire insurance is unobtainable in a lot of those zones though..

  42. drifterprof says:

    I’m currently reading “The Gods of Money” (F. William Engdahl) which, for me is good eye-opener on history of how the Fed was planned, created and controlled by American cuththroat oligarchs (e.g., J.P Morgan, Rockefeller, etc. with the help of British oligarchs).

    “Gods of Money” reveals the facts about big-player financial corruption and deceit has been around since the mid-1800s. It’s a book that jolts me to a whole nother level.

    Sort of like when, as a teenager I read “Shark and the Sardines” (Arevalo, Guatemala’s first democratically elected president in 1945). It was a real jolt learning the “America the shining beacon of democracy” was an incredibly false facade.

    • historicus says:

      “The Creature from Jekyll Island”….
      another revelation on the Fed, IMF, Import Export Bank, etc…

  43. cas127 says:

    RightNYer,

    And no internet to consolidate independent enclaves of similar thought or to promote resistance to the status quo.

    DC isn’t flinging around terms like Domestic Terrorists (TM) because it feels secure.

  44. Swamp Creature says:

    What are you all going to do when you wake up and hear the “BREAKING NEWS”

    “Derek Chavin acquitted in the trial of use of excessive force by the police in the death of George Floyd” or judge declares a mistrial because the jury cannot reach a verdict.

    I hope you have at least one months supply of groceries stocked up and are locked and loaded. Also, you may need some cash to get out of dodge if you live in a major city. I noticed some of the grocery stores stocking up like they did just before the Nov 3rd election. I live 1 mile outside of DC and am too close for comfort.

  45. Auldyin says:

    These charts are always great Wolf!
    Slap a 10yr regression line on that pair and from my eye you’ve got an almost rock steady 2.5ish% pa. Months don’t really count in the regression long run. The current kick-up looks marginally above the regression bounds but, the question as always, is what happens next? Will it pull back to regression or go off on a bender?
    It could be argued that that 2.5ish in the charts gives a little bit of vindication to the Fed’s attempts to target 2% over recent years.
    You guys are very tough on your officials. I worked in indexation for the UK Govt in the seventies when inflation got to 26% pa. We were very professional people and it drove us nuts trying to get a grip on all the problems. If our boss had tried to get us to bend the results we would have thrown staplers at him. None of this is easy stuff, for anybody, and it has huge implications for everybody.
    The way I see it, they’re not bad people, they’re a bunch of ordinary Joes struggling with the controls of an aeroplane that just won’t fly the way it used to. Every time they open the throttle to gain altitude, the juice squirts into the first class cabin. The folks in first class are terrified by all the angry folks in economy. The folks in economy are surging to the left demanding juice in their cabin, making the plane even harder to control. If they can’t get the juice to the engines (ie production and output) soon it is not going to end well for anybody on board.
    Give some of them a break, guys.

    • Auldyin says:

      I should also have added that the plane is pi**ing juice all over the world but that’s politicians not officials.

    • Wolf Richter says:

      The only 2.5% per year increase anywhere in these charts is for the bottom 50% which was less than CPI increases over the past 20 years.

      The 1% doubled their wealth in 10 years.

      • Auldyin says:

        Wolf
        I make the index compounded from 100 for 10yrs at 2.5% equal to 128.
        If I have looked up the right page in my interest tables, 103 to 123 in 10yrs is slightly less than that at, near as dammit, 1.75%pa and is closer to the Fed’s 2% than I guesstimated from looking at the charts. It’s late I could have screwed up.
        I accept these are input prices and could vary greatly from selling prices but my basic point was that technically it should be a lot higher and isn’t and nobody really knows why. It could be that the kick-up is the start of something big which would put everybody out of the puzzle of the last ten years. Why are we talking about 2 when it should have been 10? My metaphor of first class getting all the juice was in full agreement with your stance on the 1%. I haven’t managed to figure yet why it’s working that way. It didn’t used to apart from houses which were outside the index (that’s another story).

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