Producer Prices Surge. Germany, China, other Countries Are Now Exporting Inflation, Adding to US Inflation Pressures

Central banks still brush it off as just “temporary.”

By Nick Corbishley for WOLF STREET:

Producer prices of German industrial products in March rose by 0.9% from February, after having risen by 0.7% in February from January, and after having spiked by 1.4% in January from December, the biggest month-to-month jump since 2008.

Compared to March last year, producer prices jumped by 3.7%, according to the German Federal Statistics Office (Destatis), the biggest year-over-year jump since November 2011. The surge began last fall, after sharp declines earlier in the year:

Part of what caused the 3.7% increase from March last year — but not the surge over the past few months — is the “base effect“, since in February and March last year the producer price index was declining, and the latest year-over-year results are measured from those low points.

But factory prices have been rising on a month by month basis for the seventh straight months — with large increases over the past three months. And that has nothing to do with the base effect.

Prices of intermediate goods jumped by 5.7% year over year in March, the fastest since July 2011, due mainly to sharp rises in the price of secondary raw material (47%) and prepared feed for farm animals (16%). There were also increases in durable consumer goods (1.4%) and energy (8%), which in large part were driven by a sharp increase in electricity prices (9.6%).

Producer prices are now rising fast in the major manufacturing economies.

In China input costs rose 4.4% in March from a year earlier up from a 1.7% increase in February. It was the sharpest rise since July 2018. As the world’s biggest exporter, China’s rising prices stoke inflation around the world.

Inflation dynamics are mounting due to a constellation of reasons, including a global economic recovery fed by historic amounts of fiscal stimulus — unprecedented growth in government spending and borrowing — central bank money-printing, supply chain shocks, shortages and distortions, rising shipping costs, and surging demand for certain commodities and consumer goods in developed countries, particularly the US.

Surging commodity prices in China have already caused consternation among top policy makers. The Financial Stability and Development Committee recently called for efforts to stabilize prices. Authorities should “keep a close eye on commodities prices,” the committee said earlier this month.

China has long been exporting lower prices, with goods being manufactured more cheaply there than in the US and other developed markets — the much touted benefit of globalization that led to rampant offshoring in the US and Europe as Corporate America and Corporate Europe invested in China and other cheap countries, instead of at home. But that has now come to an end: Exporters of deflation have turned into exporters of inflation.

In the US, producer prices have taken off. Compared to March last year, the PPI jumped by 4.2%, the sharpest year-over-year increase since 2011. And the Consumer Price Index is starting to follow, though the Federal Reserve has promised to dismiss the jump in inflation by blaming it on the “base effect” and “temporary” factors.

In Germany, a variety of factors, including looser-than-ever ECB monetary policy and the termination at the end of last year of reduced valued added tax rates, have suddenly pushed the consumer price index up by 1.7%. Inflation is also surging in neighboring countries, reaching 1.9% in the Netherlands and 2% in Austria. But in the more depressed economies of Southern Europe, inflation is lower, at 0.5% in Portugal and 0.8% in Italy.

Concerns are rising that inflation could once again be rearing its ugly head. In Germany, inflation is now expected to reach 3% to 4% later this year, including by Bundesbank President Jens Weidmann who, in an interview in February, already predicted that inflation would be above 3% by the end of the year.

“One thing is clear: the inflation rate will not remain as low as last year permanently,” he noted, adding that the ECB will only be able to make monetary policy adjustments once inflation rates jump. And he exhorted the ECB to act when consumer price inflation takes off: “There must not be a lack of determination, even if the financing costs for highly indebted countries rise.”

But the ECB is focused on keeping the Eurozone glued together, with an eye toward the southern member states. And with three of its four largest economies — France, Italy and Spain — shouldering public debt loads of 115%, 120%, and 156% respectively, even a small rise in the ECB’s benchmark interest rate, which has been negative for years,  could prove too much for them.

At least in the short term, the ECB will continue with its easy-money policy. On Thursday, ECB president Christine Lagarde reiterated that increased inflation this year would not prompt the ECB to tighten policy, that any increase would be seen as the result of “idiosyncratic and temporary factors,” and that underlying inflationary pressures “remain subdued.”

But the surging producer prices in exporter nations, such as Germany and China, and even in the US is beginning to translate into a widespread surge of consumer price inflation. In some countries, this has already taken off on a large scale, including in Brazil, Mexico, and (as always) Argentina, Turkey, and Russia. And those jumpy inflation rates have led to shock-and-awe rate hikes in some of those countries. By Nick Corbishley, for WOLF STREET.

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  108 comments for “Producer Prices Surge. Germany, China, other Countries Are Now Exporting Inflation, Adding to US Inflation Pressures

  1. Engin-ear says:

    I see many reasons for the cost and price increases under the pandemic restrictions.

    The business processes are just slower and costlier to run with more uncertainties related to the state of supply chain.

    Production volumes being lower, the fixed costs are affecting negatively the cost per unit.

    Also, the shutdown of selected services channelled the available money to tangible goods purchases, hence the increase in prices.

    This is purely economic and should be inflationary.

    I am not sure about the net effect of the Money printing by CBs. That should be inlationary, but I suspect that all this printed money it immediately drunk by the financial markets creating little of money flow in the real economy.

    So the only question that interests me is “When exactly all kind of restrictions will be canceled in all.parts of our interconnected world?”

    • RightNYer says:

      Right, but all of the printing, in addition to being drunk by financial markets, makes people realize that cash may have less value later, which makes them want to spend. So they take their cash now and buy stuff, redo kitchens, and so forth, and that money creates supply chain shortages will DOES flow into consumer goods.

      You simply can’t print tons of extra money and not expect this. And unfortunately, our “leaders” saw low CPI inflation prints (although we know these are nonsense) are justification to spend even more, meaning that the rise that has to happen will be with debt loads even worse they were.

      It’s a very dangerous, evil positive feedback loop that feeds on itself.

      • bungee says:

        you might enjoy this, RightNYer.

        https://www.usagold.com/cpmforum/fiatmoneyinflationfrance/

        its a hundred year old essay about the inflation during the french revolutionary government. total disaster, totally predictable.
        i enjoyed it and what struck me was that just 70 years earlier the french had suffered a massive monetary collapse under john laws schemes.
        so there’s no way these ‘leaders’ today are going to know any better when people who had just experienced a hyper inflation couldn’t figure it out. there were people back then who saw it but couldn’t stop it. best we can do is get ready.

        • historicus says:

          Indeed.

        • char says:

          High inflation is not hyper inflation. They work differently on the economy. Also hyper inflation only seems to happen to enemy states. I don’t know why but it is historically accurate.

      • char says:

        The covid bill has to be paid. Inflating it away is the least bad way.

    • K says:

      Agreed. However, these price increases are not “temporary” as the banks claim. Surely, there will not be future price decreases to remove the inflation that is occurring?

      The real inflation right now is being channeled to the ultra-rich, which means that stocks, investments, and luxury goods will continue to increase in price. However, consumer inflation is also biting.

      For example, the price of the cheapest available phone cables has tripled but they have lengthened them to make them seem reasonably priced. I am a deep believer in Pareto’s Principle, so I try to get the same functional equivalent for 20% of each investment.

      Rising prices and limited supplies are preventing many such strategies. Thus, it is only a matter of time before wages have to be increased or the level of governmental aid will have to be increased to enable Americans to survive amid rising prices. There is only a limited amount of cost-cutting that most can do.

      Even if wealthy foreigners are justifiably afraid of the CCP’s apparent imitation of Bond villains, and do not want to risk becoming involuntary, organ donors, so the US dollar keeps its world reserve currency status, prices will keep shooting up. Hyperinflation may happen or merely rising, ordinary 9% annual inflation. See shadowstats.

  2. stonedwino says:

    Brazil, Mexico, Argentina, Turkey & Russia all have serious currency problems due to mismanagement of their economies on a massive scale, mass corruption and oh yeah…they are all oligarchies.

    Interest rates will have to get raised in the West at some point. The Stock Market will eventually take it in the gonads…

    • timbers says:

      The U.S. isn’t a mismanaged, mass corrupt oligarchy?

      When did that happen? Did I blink and miss it?

      • Swamp Creature says:

        U.S. is managed great! We should be looking in the mirror before looking at how other countries manage their economies

        Now I just heard from two sources, one being “Full Measure” Hedge funds are now buying up farmland near the Colorado river in Arizona. This is a prelude to the cornering of water rights in the Western states. Climatologists forecasts of a massive drought in the southwest US are prompting hedge funds to take a position in cornering water rights in the SW USA, including California and Arizona. The movie “Chinatown” from 1974 may come to pass after all. The question I have to ask, is why are we allowing these hedge funds to disrupt the distribution of a critical infrastructure item such as clean water? Is making a quick buck that important. I wonder if we could get some data on who these scumbags are that are trying to speculate on water and water rights. Clean water should be off limits for speculation.

        • Joe Saba says:

          any foreign entity/individual owning farmland in merica and using OUR water should have to pay EXPORT TARIFF
          thinking of Saudi Arabia which owns 1,000’s acres in california that exports to home land for dairy operations

        • timbers says:

          Fascinating…in a horrible sort of way. And let’s not forget US had a BIG hand in installing the oligarchs in other nations (Brasil, Rus, Turk to name a small fraction). When Rus fell apart, they made the mistake of letting Harvard Business School & Larry Summers (store fronts for World Oligarchy) do to their entire nation what you just described of the Colorado River. And we never got over why they kicked America out of their country.

        • Tigre says:

          This is sensationalism at its finest. I used to work for a firm that launched the California Water Futures Market.
          The hedge funds you are talking about have been active over the past 10-20 years. They tried to transfer water rights from On-River communities near Kingman to Central AZ and they failed in 2016. One recently succeeeded within the past year or so transferring from a small irrigation district without a nearby community. This has nothing to do with “clean water” and they are private property rights. The water gets “cleaned” from your municipal water treatment plant. There is a significant amount of regulation and political risk in transferring water rights which keeps most institutional investors away…not to mention the fragmentation and complexity involved with acquiring them at a scale.

        • timbers says:

          Tiger…. Sensationalism? I think not. Do you actually think political risk can’t be bought, doesn’t have a price, that these hedge funds endowed with limitless Fed largess can’t pay? Have you forgotten or failed to our nations highest court has effectively legalized bribery of govt officials?

        • makruger says:

          “Is making a quick buck that important?”

          Oh sweet summer child….nothing is off limits in America. Just look no farther than America’s lack of a unified single payer health care system. America’s privatized prison system is another example. The USA is full of cash cows like this.

        • w says:

          Swamp:waterwars and water rights have been a hot subject for years.I know recently that cme opened water commodity funds.Also just read that AZ would have to start limiting usage before CA or Nev. As per their treaty.Used to live in Vegas for several years from96-03,then silicon valley.Back Then,water was hotbutton issue as Nevadans felt robbed by ca in the water use.About’99,Lake Mead began drying up,restrictions started and pub service announcements re. Water conservation and xeriscape.CA kept growing those water intensove crops like berries and nuts.People Not happy with the nutgrowing,wealthy families who used political juice to get their way.

        • Swamp Creature says:

          Wolf should do a post on this issue of water rights in California and the SW USA. Not many people, especially on the east coast know squat about this since we not affected directly. No one talks about it here. I don’t know much about it either but I am interested as a former Meteorologist in the Navy and US government.

        • Lynn says:

          Serious question for you Swamp, how popular are prescription stimulants and cocaine in the upper echelons of DC? I’ve been wondering this since 2016.

        • Lynn says:

          Also, IDK the complexities of water rights, but Jack Ma now owns one of the most fertile large ranches in my area. Complete with a herd of elk.

          Foreign owners and corporations funded by foreigners should pay massive extra taxes, at the least. Many countries, including China and Mexico do not allow or severely restrict foreign ownership of their lands.

      • stonedwino says:

        The US is actually a Kakistocracy.

        • Depth Charge says:

          Bingo.

          “Kakistocracy

          A kakistocracy is a system of government that is run by the worst, least qualified, and/or most unscrupulous citizens. The word was coined as early as the seventeenth century.”

          When you have people like Maxine Waters and Nancy Pelosi in charge of the peoples’ money, you’re doomed. These decrepit skinbags couldn’t run a corner lemonade stand.

      • K says:

        Amen. Read about the banksters’ privately-owned, “Federal” Reserve.

      • Sit23 says:

        USA economy is Crony Capitalism at it’s best/worst.

      • Doug in the Philippines an Oligarchy says:

        Good insight Timbers on the Clinton regimes efforts to turn Russia in 1990’s into another one of its corporate vassal states. China sees this hence wont fall for Neoliberal privatisation tricks aka Grabitization by Oligarchs.. noone can really forecast Inflation- super complex, European and USA need to focus on a stronger State Entrepreneurial- Industrial policiez to support Entrepreneurs- A Mixed Economy- Strategies Both Germany and China apply- one factor their Industry is strong. Protect Domestic economy and wage- Invest Trillions in Human Capital- educate your citizen without Doctrines- to be imaginative, innovate entrepreneurs like Edison/Musk/ Jobs State Support a must- minimize oligarchy..a step before authoritative tyranny. Chinas Big Flaw- not investing enough in its 900million uneducated citizens.

        • roddy6667 says:

          The educational system in China is far ahead of America, which is in about 38th place among developed nations.

        • Kurtismayfield says:

          This reply is to Roddy6667

          The problem with comparing China to US educational system is cultural. China has no problems testing thier low performers out of the system. They have no problem with it being ultra competitive. The parents prioritize it above all else.

          In the US.. education is a right, not something to be earned. You cannot remove the low performers from the system. The parents prio social status above all else

          It’s not a fair comparison.

  3. Ed C says:

    To somewhat paraphrase The Who:

    “I hope I die before …

    my retirement savings become worthless.”

    • K says:

      Better hurry up then. I fear that point may be coming this decade and I wonder how the US will politically be able to meet its estimated, over $211 trillion in liabilities, excluding pension bailouts, state bailouts, local government bailouts, etc.

      Probably, that estimate now may be doubled if it were recomputed now. The ultra-rich seem committed to not paying even a fraction of the pro-rata income taxes paid on their income by the sheeple.

  4. Il Gattopardo says:

    @stonedwino, has anyone recently managed their economy worse than the US has? The stimulus and PPP “loans” and other giveaways over the last year are a stone-faced unwillingness to face any reality. This is like an aging athlete resorting to steroids in the offseason, swearing it’s just a temporary boost to get back in shape after an injury, and then staying on the juice after that with a litany of excuses.

  5. Jake says:

    Fed is bought by Wall Street and acts in the interest of Wall Street. Wall Street wants stock prices to rise so they can collect huge “performance based” bonuses. Fed helps Wall Street bankers achieve their goal by printing large amounts of money, which causes inflation and erodes the purchasing power of an average Joe. Wall Street doesn’t care about inflation since their stocks and bonuses rise way faster than inflation. But an average Joe’s wage rises only a small percent and almost always lag behind inflation. Therefore, overtime, average Joe gets poorer, Wall Street gets richer. As a result, QE money printing is really a tool by the Fed to tax the poor to subsidize the rich. If you don’t believe, just look at how much income and wealth inequality has risen since 2008.

    • Swamp Creature says:

      This is exactly what happened in the early stages of the Weimer Republic in 1921/1922. Wages lagged inflation by a considerable amount and wealthy people moved their liquid assets overseas, into the stock market and evaded the high rate of taxation which fell upon the middle class.

  6. Remember that all of this Inflationary stuff is merely TEMPORARY per our Tearless Fed Chair, Powell, and no need to modify your spending plans for 2021. However, price increases slowly work their way thru the supply chain from raw material suppliers, to producers, to end-users. Much of what we see at the Supplier and Producer levels have yet to impact the End-User or Consumer levels.

    Interest rates should be raised immediately to counter way excessive Money Supply chasing too few Goods/Services due to artificially created Demand due to No Cost/ Low Cost Money. Central bankers can take a big bow for the last tidbit, but manipulators seldom reverse course soon enough to stop the in-place trend, much less to reverse that trend. History has shown that once the Inflation Genie is out of the proverbial bottle, it is very difficult to contain or reverse. The new trend lasts for some time.

    The U.S. Fed, leader of the world in self-destructive monetary policies, has certainly slain the DEFLATIONARY MONSTER over the last 13 years, but has been too loose, too long, and has now unleashed the INFLATIONARY DEMON. With global total incomes from productive activities, not hand-outs, gravely suppressed, significant increases in Monthly Living Expenses will put another brake on the Global Economy. The is one of the BLACK SWANS many of us here commenting on Wolf Street have expected for some time. The net result will not be good.

    The path of least resistance for Interest Rates is decidedly up. The path of least resistance for Stock and Bond Prices is soon to be decidedly down (once the buyers of “concepts” versus assets ….. WAKE UP or there is a major financial failure). The alarm clock is already ringing.

    • MonkeyBusiness says:

      Rumor has it Powell is a triple agent. He is actually a Russian agent working as a Chinese agent employed by an American institution.

      You heard it here first!!!

    • Brisket says:

      I don’t think rates will be allowed to go up. They’ll replay Japan and just buy the bonds themselves if necessary. Like Japan, the currency will strangely fail to implode because there’s always short-term demand demand for dollars as collateral. Like Japan, with zombies everywhere the rates can’t go up and neither can growth. Forget lost decade, it’ll be multiple decades. I think the young already know this instinctively- they’re not going to have the experience their parents had of ever-increasing wealth and opportunity as they go through life. It will be a slow and boring grind with little to look forward to – tolerable but depressing.
      Francis Fukuyama was wrong that the fall of communism was the end of history – low interest rates forever so no one can ever go out of business, *that’s* the end of history.

      • Fat Chewer. says:

        Oh, but I can look forward to our latest reality TV show called married at first sight. A dozen ubertards get married at first sight! Must see TV! I have over 20 channels of shit on the TV to choose from. I beat you, Pink!

        Our government won’t even allow open access channels even after going digital, with each existing station getting a huge amount of bandwidth they don’t even know what to do with. So it’s all home shopping and “lifestyle” channels. “Duh, I’m a government minister. Bribes go here!”

        • Fat Chewer. says:

          Oh, BTW, the reason we don’t have any open access channels is because anyone who advocates such things is obviously a commie pinko so they have to be treated like turds. Thank you, right wing brainwashing.

  7. MCH says:

    Nick,

    You know what, inflation smlafation, the J team (Joe, Jerome, and Janet) looks at it, and responds, BRING IT ON. We can print dollars faster than you can make stuff. Then we will give those dollars away so everyone in the US can afford your stump.

    You know, I am glad Joe is in office, otherwise, the TJS team just doesn’t sound as good as the J team. Yes, we are really floating the cream to the top now, you don’t get the A team or the B team, you get the J team.

  8. 2banana says:

    It’s all fun and games until the mostly peaceful food riots happen.

    “But the surging producer prices in exporter nations, such as Germany and China, and even in the US is beginning to translate into a widespread surge of consumer price inflation. In some countries, this has already taken off on a large scale…”

  9. Spencer Bradley Hall says:

    Rates-of-change in monetary flows, volume times transactions’ velocity, equal roc’s in P*T in American Yale Professor Irving Fishers’ truistic: “equation of exchange”.

    The distributed lag effect of money flows is necessary for comparison. The distributed lag effect of money flows, both for R-gDp and inflation have been mathematical constants for > 100 years.

    Prices peak in April.

  10. Cruiser says:

    General price inflation is driven by a fall in the general price of the underlying currency (unit of goods and services per currency unit), hence supply and demand for that currency. Supply of currencies around the globe is increasing at an accelerating rate, and will continue to if central banks hope to avoid a global deflationary collapse, but it is the sudden change in demand which will occur when confidence in debased fiat collapses that will fuel severe general price inflation. We haven’t seen that yet. Note, demand for any financial paper can collapse very suddenly and sharply, even financial paper which isn’t inherently worthless (endless examples through history). Imagine how quickly demand for increasingly junky fiat currencies can collapse.

    Note, the Phillips Curve is a very popular academic fantasy.

    • Fat Chewer. says:

      Yes, a massive downward revaluation of all major currencies preceding a new global currency made up of a basket of devalued currencies. Hmm, I’m thinking that we should use the lowest possible rate for the new currency. How about 1 milligram of cubic zirconia to the dollar?

  11. Swamp Creature says:

    This inflation in Europe may explain the sudden rise in price of items in the grocery store that are sourced in Germany, France, UK etc; I save my receipts for comparison. I’ll check some more items, but here are a couple:

    April 2020 April 2021

    French Marmalade $3.49 $5.49
    Carr’s Table Water Crackers $3.50 $4.29 (made in UK)

    • El Katz says:

      Also watch for “shrinkflation”. The package of our favorite ice cream shrank from 1.75 quarts to 1.5 quarts….. and the price remained the same.

      • Heinz says:

        Thank them for trimming your waistline and giving you a health bonus.

      • AUldyin says:

        ELK
        I couldn’t figure why I was getting thin eating the same menu every week until I looked at the packets.
        Now I’m eating twice as much to stay the same.Duh!

    • rick m says:

      Karl Fazer chocolate from Finland has been 200gram bars for over ten years, but this year they’re 145gram. My favorite, made with fresh milk, are the cows shrinking too? Artful packaging games conceal a multitude of sins from the casually unobservant

    • Swamp Creature says:

      Correction

      Carr’s Table Water Crackers went from $3.50 to $4.39 (made in UK).

      That’s for a 4.25 OZ box.

      This is starting to look like Weimer Germany on 1922. Just spent over $200 for one week’s or less worth of groceries.

    • Swamp Creature says:

      Remember the campaign ad in 1980 that the “gipper” ran showing a shopping cart 1/2 full. The ad said this is what you’ll get for $100 if Jimmy Carter is re-elected. Now fast forward to 2021. With Jimmy Carter 2.0 in the white house we got exactly what the “gipper” predicted. Only now instead of 1/2 full it is more like 1/4th full.

      Enjoy

  12. Antwan says:

    Our company has some production in China. Some raw materials up 40-50%. Migrant labor can’t be found. Ocean freight is unbookable even for decently-sized customers. Ocean freight in 2020 was already up 50% from 2019. Huge shipping delays. It’s a ****show. The only thing that hasn’t seen double digit increases yet is freight within North America.

    We raised prices substantially last year (20-30% retail) as inventory kept selling. We expected a price freeze or even reduction this year but it looks like we’ll end up increasing retail prices another 10% or so.

  13. Heinz says:

    The times they are a changin’.

    China, long an exporter of cheap and inexpensive consumer goods to US is now an exporter of inflation to US. Hold on to your hats (and wallets).

    Who saw this coming? Certainly not the Fed. But then Fed technocrats couldn’t see inflation even if it jumped up and down in front of them.

    • David Hall says:

      China is a money printer. They are also suspected of predatory lending in the Belt and Road initiatives. A nation was unable to pay for Chinese B&R port improvements. China seized a 99 year period of ownership of their port.

      • Gandalf says:

        These countries can always default on their obligations, as many countries have.
        The Soviet Union never paid back a single penny of the Lend Lease aid we gave during WWII.
        We made Britain pay back all of its Lend Lease, which it did finally in 1975.

      • Auldyin says:

        DH
        China got paper.
        Country got a nice new port.
        Who wins?

  14. Bobber says:

    Inflation is temporary only if the massive stimulus is temporary. Who really thinks central banks will refrain from doing another huge stimulus in response to a 10%-20% drop in asset prices?

    The inflation is not temporary, and neither is the stimulus. They print money to fuel growth, then the following year they print even more money to fuel more growth, and so on, until the public takes power away from insane central bankers. Problem is, nobody represents 90% of the public, so this could go on for a while as the powers attempt to manage this with smoke and mirrors.

  15. Depth Charge says:

    I’m glad that I am buying nothing this year other than food and the necessities of life. Other than some emergency, I am sitting everything out.

    On another note, that Toyota dealer who raised their prices on their website to $2,000 ABOVE msrp has now brought them back down to msrp. That lasted a week. I don’t think it was a good tactic.

    • Heinz says:

      In these inflationary times is it not true that some producers and middlemen will try to push the price envelope here and there to get ahead of the game?

      • Jdog says:

        That is exactly how it works. In a normal market, supply and demand dictate price, unfortunately, out markets are not normal and are in fact monopolies in which collusion is used to take advantage of market fluctuation in order to maximize profit.
        Gasoline prices are always raised in advance of vacation season knowing people are committed to travel.
        The government stimulus was a green light to corporations to raise prices knowing people would by habit spend, and not save their windfall.
        In fact, the government stimulus was more targeted at the multi national corporations than to the citizens. The citizens were only the middlemen in the transaction, and the corporations ended up with all the money.

    • Kurtismayfield says:

      Yeah that dealer is a moron. They have competition from another dealer ten miles away.

  16. Yort says:

    The Fed seems to be ignoring that inflation is more than supply/demand. The human pychology plays a huge role, as why sell your home, auto, etc when the price of everything is going up 5-200% per year. The Fed seems to only thing human emotions will respond to inflation, not deflation. As if people are going to buy more stuff, at much higher prices, when the stuff we have, such as homes and autos, can be maintained and used as they appreciate 10% per month. How many people run to a store when they raise the price 20% vs drop it 20%? The Fed believes Americans like negative discounts…which makes almost as much sense as negative rates.

    The Fed is upside down…and if/when the human psyche flips, they really do not have tools that can change that very quickly (study Japan), as the Central Bank Digital currency is not tested yet anywhere except China. China has to be laughing at the long term damage the Fed is doing to America right now…

    • RightNYer says:

      Don’t you think people buying things because of fears of inflation is the people responding to inflation?

      • Fat Chewer. says:

        Yes, that has something to do with it, but where is the buyer’s strike? Depth Charge and I have seen this is the only way to go, yet others, in their wisdom, have to have it NOW! Like Veruca Salt. Willy Wonka must be muttering something scornful under his breath.

  17. Micheal Engel says:

    1) There is no risk of high inflation. WTI was up $110 from minus 40 in Apr last year to $70 in Mar 2021. WTI will be back to normal at around $42.
    2) EURUSD was up more than 23% between Apr 2020 and Jan 2021, to a lower high.
    3) China industries produce more, because we gave them more rush orders during the pandemic.
    4) At the same time US cont to rejuvenated their industries.
    5) The global over capacity is growing and it’s real !
    7) Rising tariffs are here to stay. The trend is up because they fill the gov income gap.
    8) The German PPI chart : connect the three upper dots : 2008, 2013 and 2021 highs // connect the lower dots : 2009 to 2016 lows,
    u get an ending triangle. This pattern is incomplete. Patterns can change.
    9) The RE are globally is real. Rent is rising in the past 10 years.
    11) The innovator’s solution : precision mfg off-site, assemble on-site, like a lego, within few days and great for the climate change fans. Starbucks Abbottsford BC Canada was created within 6 days.

    • Sit23 says:

      As has been said about a billion times before, too many powerful, influential people all around the world owe too much money to allow interest rates to rise. Interest rates will not rise. Hell will freeze over first.

      • Mojer says:

        If inflation gets out of control I doubt the influential people will stop it when it is too late

    • historicus says:

      Michael…
      What would change your mind about “There is no risk of inflation”?
      Would higher prices?
      Like lumber, Corn, Soybeans, Copper, Aluminum?
      OR would it take more?
      Like housing?
      Or would it take some wage inflation? McDonalds paying people to come in for interviews, and govt payouts keeping people at home.
      Plumbers, electricians, carpenters….making more or less right now?
      Prices are so whacked that contractors can’t even bid jobs, for they know not how to get ahold of critical supplies and at what price.
      What would change your mind?
      Vehicle prices…new and used rising sharply?

  18. Rowen says:

    I’ve always wondered how Belt and Road would alter the pricing of everything globally.

    Seems that it would be deflationary for the Global South and inflationary for the Global North.

  19. Minutes says:

    Stop complaining and get in the game. Hoard plywood and wait.

    • Wolf Richter says:

      Hoard plywood at current plywood prices???

      • Wolf, I was going to buy a sheet of plywood to take with me to a vacation rental cabin here in Virginia this summer since the last things that the landlords spend money on seems to be mattresses. My brother has a large van so transport will not be a problem, but the price of the Mattress Firmer is very much a psychological problem at this point. I guess I will just sleep on the floor to save my aging back. Hate Canoe Mattresses that engulf you like a canoe while you toss on rough seas all night.

  20. DR DOOM says:

    Political definition of temporary is forever. Ben Bernanke told the world a decade ago that interest rates at zero were temporary and so was QE. Temporary has been a decade on that whopper. There is no down side for government lying because lying is what we do, especially to ourselves. I like using cognitive dissonace when I lie to my-self. It’s like a nice warm blanket on a cold day.

    • historicus says:

      DR.
      Yes. WSJ July of 2009….Bernanke and how QE was temporary.
      Now he’s on the lecture circuit.
      One would think his inaccuracies would not draw an audience.
      Maybe he gets paid even though no one shows. And who might pay that money?

    • roddy6667 says:

      Everything is temporary. Life is temporary.

  21. desiree says:

    The best inflation hedge is real estate. Especially with a large fixed rate mortgage.
    And the RE market is…..exploding.
    That’s the funny thing about inflation: people feel it.

    • historicus says:

      And what of prices when reality kicks in…and mortgage rates double in a year? Leveraging debacle.

    • Fat Chewer. says:

      It’s funny because I only read “large mortgage”. Who cares about the “low fixed rate” when the principal alone will take more than a lifetime to pay off? Yeah, I’m feeling that inflation alright!

      • Fat Chewer. says:

        Also, the rate may be fixed, but the dollar’s buying power isn’t. You will have to work harder to earn the same amount of devalued dollars. Does that sound familiar? Oh, yes! That’s what our dads told us when we were a children!

        • desiree says:

          That’s the whole point. You payment is nominally fixed but decreases year after year in real dollars.
          My father built a mansion in 1970. Payment was 25% of his income. 10 years later his payment was nominally identical but only 5% of his income.
          That’s the power of RE/inflation.

        • Jdog says:

          The business cycle is designed to keep the working class building, and then loosing their assets to the rich.
          There is always a boom, followed by a bust in which the rich, like croupiers collect the assets that the working class have paid to build, as they overextend their debt loads.
          People who say naïve statements like “this time is different” are ignorant of how the game is really played.
          To suggest the game has now changed is as absurd as thinking a casino would allow the majority of gamblers to win.
          The business cycle may fluctuate in duration, but it will always complete its cycle….

    • YuShan says:

      When inflation gets hot, rates rise and real estate prices fall because they cannot be financed anymore.

      You also bankrupt the pension schemes and to fill the holes, taxes will have to rise. The obvious target is real estate, because that is where most of the wealth resides AND very conveniently, it cannot be moved! Real estate is a trap.

  22. John says:

    Nick,
    Thanks for the info. It will be interesting with all the central banks. Europe is a little more complex. China is centralized, that will be interesting too. The yaun I assume they will target. U.K. to grow too, with all the vaccinations. Stronger currencies? Seems like it except the dollar, and I don’t believe it’s on dollar weakness. Thanks again.

  23. historicus says:

    It seems there is a certain consistency ….
    The Federal Govt does not enforce immigration laws…

    The Federal Reserve, INSTRUCTED by their second mandate of stable prices TO FIGHT INFLATON……PROMOTES inflation.

    Laws and mandates are wisdoms from previous generations. They are there for a reason. Yet the self anointed “geniuses” of today ignore AND ARE SOMEHOW ALLOWED to ignore these wisdoms.
    The wisdom of the third unmentioned Fed mandate…”promote moderate long term interest rates.”…ignored.
    This mandate is there to PREVENT irresponsible debt creation that pulls wealth from future generations to fluff the present. “Moderate” means “not extreme” and record low rates can be just as damaging as rates that are too high. The low rates are why we have added over $20 Trillion in national debt in 12 years. The low rates are why bills loaded with PORK are passed with ease. The low rates are why housing bubbles happen and middle class savers are punished with returns on fixed income that don’t cover inflation.
    Brace yourselves. It will come sooner and quicker.
    WSJ today talking about tapering and rate hikes several quarters out. If they wait that long, the damage will require a Volcker approach.

  24. historicus says:

    First Inflation will be denied.
    Second it will be admitted to, but colored as transitory. (shortages,etc.)
    Third, it will be applauded as a sign of brisk economic activity.
    Finally, it will be dealt with only in a cosmetic fashion. 1/4pt raises behind the curve, the Fed limping in as if to confront the issue.

    Mandates ignored, limitations on powers cast aside, misdirected rate cutting and QE vocally in support of employment, yet with little effect in reality. Rather a great “fluffing machine” for equities and housing, for some.

    The Fed is rogue and unaccountable. Not until the citizenry and business owners grab the pitchforks and torches will there be one politician that will point to the reckless Fed. Too late.

    • b says:

      Heard there is a shortage on pitchforks!! :-)

    • Swamp Creature says:

      Fifth

      Wage price controls like in 1971, prior to the next election cycle.

    • rick m says:

      historicus “that’s got the hallmark on it!”(hat tip Mark Twain). I think you nailed the sequence. Jerome Powell is no Paul Volcker. Although much currently resembles the later Carter administration, a point well made by SC elsewhere in WS comments. Just wondering if since Powell seems to share his manhood with Dora the Treasurer maybe they’ll try wage/price/capital controls under some New Age of Economics name when they spot the torches in the distance?we’re talking about the US government here, meaning they always do the right thing, after they’ve tried everything else.

  25. YuShan says:

    In the mean time, a partnership between Kinesis and the Indonesian government has just introduced gold as a payment and savings method, effectively introducing it as a parallel currency that cannot be debased. The Indonesian government has called it a “project of national importance”.

    • Tom Pfotzer says:

      YuShan: Thanks for this heads-up. I wouldn’t have seen that one w/o your cue.

      This is especially interesting; it’s happening in a Muslim country, with Sharia anti-usury attitudes. Digital currency, based on gold, rolled out via Postal Service first to postal employees then shortly to general public.

      Looks like very big top-down buy-in; this is no slouch of a roll-out.

      Indonesia is the world’s fourth-largest nation by population. I bet a lot of other countries are going to be watching this closely.

      • YuShan says:

        Yes you are right, this is massive. It is said to be one of the biggest public-private partnerships in history. It is also endorsed by the United Nations, because it ticks many boxes in their development goals to get people out of poverty.

        And yes, the system is compliant with Sharia law too, which is also reflected in the name of the Indonesian app: “PosGO Syariah”. Indonesia is the largest Muslim country in the world (270 million population, 87% Muslim).

        Even the 4 biggest Indonesian banks are onboard, so the possibility to save and pay with gold will get widespread adoption in all layers of the population :)

        I’m planning a birding trip to Indonesia after Covid, so it will be interesting to see if by that time I can pay for some things directly in digital gold (cutting Visa card out of the loop).

  26. John says:

    Yields up, other currencies up. Inflationary.

    • historicus says:

      Corn, Soybeans, Wheat, Copper….all new highs….

      The grocery store …. and Restaurants…..will be challenged.

      • Dan Romig says:

        Yes, and don’t forget soybean meal, or ZM on the Nasdaq. Friday’s close was $425.8 and on 13 May 2020, it was $287.3. That’s a 48% increase in less than a year.

        Hot off the press from Red River Farm Network: ‘China Seeking Alternatives to Corn and Soybean Meal’
        “The world’s top buyer of corn and soybeans is responding to tight global supplies and higher prices. The Chinese agriculture ministry is promoting cheaper feed alternatives than corn and soybean meal. New guidelines for feed manufacturers recommend the use of wheat, barley, sorghum and rice as a substitute for corn in the ration. Protein options to replace soybean meal included distillers dried grains, cottonseed meal and sunflower meal.”

        I look at soybean meal is a predictor of where wheat, soy and corn commodities are about to go. Two months ago I allocated a small part of my portfolio to have a couple ETFs that track this (RJA & DBC).

        • Dan Romig says:

          Well, ZM on the Nasdaq is Zoom Video Communications, Inc..

          What I was looking up in order to check back on soybean meal pricing was Soybean Meal (ZM) Historical Data from nasdaq dot com.

          The CBOT has the May-2021 Soybean Meal Futures contract price as ZMK21.CBT. As I type, it is @ $429.70. This is down from $459.90 on 14 January 2021, but the same for mid May of last year as the above comment says.

          Details, you know?

      • Jdog says:

        Correction.. Independent grocery stores and restaurant will be challenged, as corporate owned entities take their place.

        In case you have not noticed, this entire “Covid” crisis has been a cover to declare war on the independent business person, designed to drive them out of business and competition with the corporations.

        • Swamp Creature says:

          Jdog,

          This has already happened. Whole commercial strips are gone except for chains. This place is starting to look like Rockford, Ill.

          Who was it that said “Never let a crisis go to waste”

        • Marko says:

          Swamp, I was just in Rockford, State and Mulford, on the formerly nice Far East side. I could not believe how rundown the East State street shopping area was. Sad to see this happen to my hometown.

  27. YuShan says:

    In 1964, the minimum wage was five 90% silver quarters.
    In 2021, five 90% silver quarters have a melt value of $23.34.

  28. Kurtismayfield says:

    All mages f this fears of inflation talk assumes the average US consumer understands inflation. Never assume that the majority of the US population understands squat about inflation or monetary policy.

    • Lynn says:

      Key to explaining it is “the amount paid of everything but wages increase; wages stay the same and the prices of rent, goods, cars and insurance etc rises”. Which is logical really. Inflation could mean wages increasing- it never does, but technically it could. When it’s explained this way it is understood.

  29. rick m says:

    12-2 romex@Lowes was $77/250ft in early February, $122 now. It takes at least ten rolls for an average house plus larger conductor/more expensive cable for appliances, HVAC, etc. If they’ve got it in stock, if your electricians show up, and if it isn’t stolen out of the job during construction, local police no longer investigate copper theft unless it’s from a government job. A client lost a truck radiator to thieves in a locked/lit/camera-ed area, then they stole the replacement radiator and the catalytic converters, all video’ed, police aren’t interested.

    • Lynn says:

      Take the video to the local news and ask the journalist to interview LE. That’s what people do here, sometimes that works. Unless your state has “catch and release”.

      And get a good dog.

      • rick m says:

        I did that after Katrina, when the National guard was positioning equipment to bulldoze a flooded neighborhood deemed a health risk where my mother lives. The local ABC affiliate stopped it, with help from our congressional representatives. They have to run a TV station in a small community and need amity with law enforcement to do their jobs. And I suspect there’s simply far fewer cops available due to the replacement dynamic breaking down, nowhere near a good enough deal to assure sufficient new recruits, even though we’re not defunding anybody. Anecdotally worse where they are. Rarely see a police car rolling these days. I’ve had good dogs, and I would have to stand guard with them, i could never sleep at home in the AC with them out there alone, and wonderful as they all were, not one was even an adequate shot with any gun i owned.

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