Here comes inflation, will it stay?
Consumer prices have jumped the highest since 2012. The White House says it's a blip, but gas prices are up over 9% in a spring thaw.
It’s a thing that gas prices reliably go up in the spring. About 90% of the time, the pump price of gasoline goes up between January and May, so it’s no surprise. Some of this is chemistry: Gasoline blend formulas change seasonally, and the summer blend is more expensive to produce, therefore when winter blend is being used up, the price goes up.
The price of crude oil can tick this natural seasonal change up or down. In 2020, during the thick of the pandemic, the oil crash kept prices low. In 2021, with the green team Democrats in the White House, Keystone XL once again canceled, and oil prices rising, gasoline is up 9.1%, and it’s driving the price of everything up.
The Washington Post reports White House insists that the 2.6% increase in consumer prices is temporary, and reflects the economy jump-starting after a year of lockdowns. However, Fed Chairman Jerome Powell told “60 Minutes” he wants to peg inflation just above 2% for 2021. This has some implications for you and me.
“We don’t have the answer to everything, but the job that we do for the benefit of the public is incredibly important, and we do understand that if we get things right, we can really help people,” he said. “If the people who are at the margins of the economy are doing well, then the rest of it will take care of itself.”
Powell is making a huge bet on cash payments and stimulus cash to keep “the margins” out of the gutter. For 2021, this may not become a problem, but in 2022, I see a game of musical chairs for good jobs, where the “margins” folks will lose their place. Amazon, despite its gargantuan workforce, can only hire so many people.
When energy prices go up (in this case, year over year from 2020, energy is up over 13 percent), the cost to make everything, transport everything, and sell everything, never mind running our air conditioners, computers, and cars, goes up.
Pent-up demand coupled with a job market and a dearth of workers willing to fill the low rungs of employment is driving wages up, and making certain good and services more scarce due to companies’ inability to meet orders.
Certainly, the White House is entitled to its opinion that inflation is manageable and the U.S. economic ship will right itself. But unless energy prices slow their rise, it seems unlikely that the Fed will be able to corral the CPI, even with interest cuts. Biden’s commitment to green energy will ensure energy prices don’t fall.
Meanwhile, the stock market is, so far, cashing in. So much for the little guy.
I’d say we’re looking at higher prices on fuel, energy, and consumer items for the longer term. I think the White House is playing a messaging game while it pursues massive debt spending. While the racial “equity” folks spread their concerns about the rich getting richer and the marginals getting more marginal, the actions of the Biden administration and the Fed are feeding that cycle, big-time.
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