What’s likely to happen with inflation? More of it and for extended time.

Rising costs and constrained shipping capacity is driving inflation and disrupting supply chain across the economy. Image courtesy of Adobe Stock.

Indicators I can see suggest inflation is going to continue at a high rate for quite some time. Here are a few of the articles I have read recently pointing towards ongoing rise in prices:

  • Rent component of CPI will increase substantially over the next year because of the way the index is calculated.
  • Shipping costs have already skyrocketed.
  • Multiple food producers are struggling with rapidly increasing costs.
  • Major food producer expects their costs go up 11% in the next year with prices they charge to go up by 4%.
  • The phrase “stagflation” is back in play. Oh joy, a possible (likely?) return to the Carter administration.

Asia Times – 8/27/21 – US rent hikes will explode consumer inflation in 2022 – Anecdotal information indicates rental prices are skyrocketing.

A friend of mine priced the apartment they are living in to help a relative who was moving into the area. Price for this exact unit is 50% more than when they signed their annual lease a number of months ago.

An acquaintance reports the price for renting a particular house went up while they were thinking about it for a day or so.

Two friends report landlords renting apartments expect six months rent in advance and some landlords renting houses are expecting a year in advance. A year.

Article mentioned above says the reports floating around in the media indicate rent hikes overall are around 10%. Yet the CPI shows only 2% increase in rent.

How can that be?

Fascinating detail of how the CPI is calculated explains the anomaly and also points towards dramatic increase in the rent component of CPI over the next year.

Rent contacts in the United States are typically for one year duration. The CPI assumes that leases will expire and thus be renewed in about a one year timeframe. That means the index calculates increasing rents as if one out of 12 tenants signed a new lease each month. Thus only a fraction of the overall increases roll into the rent component of the CPI in a month.

Implication of that methodology is that over the next year the skyrocketing rental rates will continue to work the way into the CPI.

This means there will be ongoing upward pressure on the CPI.

Wall Street Journal – 9/16/21– Rising Shipping Costs Are Companies’ Latest Inflation RiddleTransportation is a significant part of every step of the supply chain for every product you buy. Those costs are increasing rapidly.

Graph in the article shows the cost for shipping container from China to the West Coast. Amount is for a 40 foot container.

Through 2019 and most of 2020 the cost was from $1,300 slowly rising to $1,500. Chart shows rise to around $3,800 in late 2020 until the beginning of 2021. There is a jump in the first couple months to between $5,000 and $6,000.

In the most recent couple of months the cost has skyrocketed to $20,000.

From fifteen hundred to twenty grand.

The costs are five times higher than a year ago and 14 times higher than two years ago.

Trucks to move goods over the road are becoming scarce and more expensive.

Article quotes the CEO of Dollar Tree saying that company expects no improvement in shipping costs throughout 2022.

Wall Street Journal – 10/7/21 – Conagra, PepsiCo and Other Food Makers Grapple With Higher Costs. – Price increases are working their way through the supply chain bringing food to your kitchen and favorite restaurant.

Major producers are increasing prices with article specifically citing ConAgra, PepsiCo and Lamb Weston Holdings.

ConAgra says it is seeing rising prices for meat, grains, steel cans, labor, and transportation. In other words, cost of every single input is going up.

PepsiCo says it is seeing increased costs for aluminum cans, plastic bottles, transportation, and labor. Everything except sugar and other raw materials were explicitly mentioned as issues.

ConAgra announced its estimate of gross inflation (not exactly sure what that means) will be 11% in 2022. They foresee prices going up 4% across the board in the next year. Those estimates are for their fiscal year ending 9/30/22.

The Last Refuge – 10/7/21 – Perfect Storm Coming – ConAgra Announces Food Price Inflation Likely to Remain Around 11% Through 2022. – Article summarizes the preceding discussion about ConAgra’s forecast for food inflation.

Two major additional items discussed in the article.

First, a significant portion of food for delivery today is on contracts based on pre-pandemic prices. As contracts renewal, dramatic increases from raw food cost, labor, and transportation will get priced in. That means prices we will see at restaurants and in grocery stores will accelerate.

Second, article explains intentional federal policies are driving this as well. The Fed pumping hundreds of billions into the economy, congressional stimulus payments including paying people an extra $300 a week to not work, and a massive deficit that will probably grow all have multiple impacts. Most directly they drive inflation.

Less directly, the flood of cash into the economy is driving down the value of the dollar, which in turns drives up the value of durable goods imported and drives down the value of food exports (of which the United States has massive volumes). The lower cost of American grain drives up demand which pulls supply away from the United States, in turn driving up costs here.

Additional disruption of the labor market due to a variety of federal policies is creating turmoil for staffing, for processing, and all stages of transportation.

All this is leading us nowhere good. As one depressing possibility…

MarketWatch – 10/1/21 – “Stagflation is here,” following months of rising prices, BofA analysts say.  Some analysts from Bank of America see inflation continuing combined with a weak economy.

In other words stagflation.

Comments driving their assessment are high inflation rates and a growing expectation that prices will continue rising for quite some time. Economy is not as strong as the stock market thinks.

There is a growing energy problem, specifically not enough electricity, in both Europe and China. Disruption from that could be significant.

Previously the claim to fame of the Carter Administration in the 1970s, stagflation is now emerging as a topic of discussion in the US. This is not the first article I’ve seen raise an idea that we have returned to the hallmark of the Jimmy Carter economy.

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