{"id":25184,"date":"2021-04-14T07:18:52","date_gmt":"2021-04-14T07:18:52","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=25184"},"modified":"2021-04-14T23:47:54","modified_gmt":"2021-04-14T23:47:54","slug":"inflation-is-baked-into-the-cake","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2021\/04\/14\/inflation-is-baked-into-the-cake\/","title":{"rendered":"Inflation is baked into the cake"},"content":{"rendered":"

Inflation is a hot topic at the moment. For good reason: higher inflation would drive up interest rates, affecting both bond and equity prices, as well as commodities and precious metals.<\/p>\n

March CPI jumped to 2.64% but the increase is partly attributable to the low base from March 2020. Core CPI (excluding food and energy) came in at a more modest 1.65%. The main difference between CPI and core CPI is rising energy and food costs.<\/p>\n

\"CPI<\/p>\n

The annual inflation rate in the US ……is the highest reading since August of 2018 with main upward pressure coming from energy (13.2% vs 3.7% in February), namely gasoline (22.5% vs 1.6%), electricity (2.5% vs 2.3%) and utility gas service (9.8% vs 6.7%). Prices also accelerated for used cars and trucks (9.4% vs 9.3%), shelter (1.7% vs 1.5%) and new vehicles (1.5% vs 1.2%) while inflation slowed for medical care services (2.7% vs 3%) and food (3.5% vs 3.6%). Cost of apparel continued to fall (-2.5% vs -3.6%)……..a jump in commodities and material costs, coupled with supply constraints, are pushing producer prices up and some companies are passing those costs to clients. (Reuters<\/a>)<\/p><\/blockquote>\n

10-year Treasury yields eased to 1.62% with the breakeven inflation rate at 2.33% — weakening the real 10-year yield to -0.71%.<\/p>\n

\"10-Year<\/p>\n

Inflation and the Money Supply<\/h3>\n

Milton Friedman famously said, \u201cInflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.\u201d<\/p>\n

\"CPI<\/p>\n

But experience since the 1980s shows several surges in money supply growth without a corresponding rise in inflation. While an increase in money supply may be a prerequisite for a spike in inflation, it is not the cause.<\/p>\n

More direct causes of inflation are increases in input costs for suppliers of goods and services. The two largest input costs are commodities and wages. Rises in commodity prices will mostly affect the manufacturing sector, while increases in wage rates impacts on all employers. Also, commodity prices tend to be cyclical, so price fluctuations will be more readily absorbed, while wage increases tend to be permanent and more likely to be passed on to customers.<\/p>\n

The chart below shows a much closer correlation between hourly wage rates and CPI since the 1970s, with surges in hourly earnings accompanied by a rise in inflation.<\/p>\n

\"CPI<\/p>\n

Conclusion<\/h2>\n

Rising commodity prices are driving higher inflation at present. While some of the pressures may be transitory, due to supply interruptions, underinvestment in new production over the last decade is likely to act as a supply constraint for both energy and base metals. Rising demand fueled by short-term stimulus and longer-term infrastructure investment would act as an accelerant.<\/p>\n

Wage rate increases are so far restrained, but that is likely to change as the economy recovers, boosted by decoupling from China and on-shoring of critical supply chains. Shortages of skilled labor are expected to drive up wage rates, maintaining upward pressure on inflation in the longer-term. Training and education of suitable staff will take time.<\/p>\n

We have all the ingredients for an inflation spike. A massive boost in the money supply, accompanied by record stimulus payments, much of which has been channeled into savings. This will help to fuel increased demand in the longer term, while restricted supply will drive up commodity prices and wage rates for skilled labor.<\/p>\n","protected":false},"excerpt":{"rendered":"

Inflation is a hot topic at the moment. For good reason: higher inflation would drive up interest rates, affecting both bond and equity prices, as well as commodities and precious metals. March CPI jumped to 2.64% but the increase is partly attributable to the low base from March 2020. Core CPI (excluding food and energy) … <\/p>\n

Continue reading “Inflation is baked into the cake”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31,9,13],"tags":[4754,69,818,854,4797,4341,1722,1828,2179,4794,3204],"class_list":["post-25184","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates","category-gold-precious-metals","category-inflation-economy","tag-10-year-inflation-breakeven-rate","tag-10-year-treasury-yield","tag-core-cpi","tag-cpi","tag-critical-supply-chains","tag-de-coupling","tag-hourly-wage-rates","tag-inflation","tag-m2-money-supply","tag-on-shoring","tag-spot-gold"],"yoast_head":"\nInflation is baked into the cake - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Inflation is baked into the cake - the patient investor\" \/>\n<meta property=\"og:description\" content=\"Inflation is a hot topic at the moment. 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Core CPI (excluding energy & food) was slightly higher, at 1.7%. The medium-term outlook for inflation is modest. If so, why all the excitement about Gold? Surely the main function of Gold\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":45404,"url":"https:\/\/thepatientinvestor.com\/index.php\/2023\/11\/15\/dollar-crashes-while-gold-and-stocks-rally-on-weak-cpi\/","url_meta":{"origin":25184,"position":1},"title":"Dollar crashes while Gold and stocks rally on weak CPI","author":"Colin Twiggs","date":"November 15, 2023","format":false,"excerpt":"A weak CPI report and the prospect of lower interest rates caused a rally in bonds, stocks and precious metals. 10-Year Treasury yields broke support at 4.50%, offering a target of 4.0%. We expect a surge of investors into longer-term Treasuries, driving yields lower, as the peak at 5.0% now\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"10-Year Treasury Yield","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-11-15-tnx.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-11-15-tnx.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-11-15-tnx.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":40882,"url":"https:\/\/thepatientinvestor.com\/index.php\/2023\/02\/15\/40882\/","url_meta":{"origin":25184,"position":2},"title":"CPI: Inflation proving persistent","author":"Colin Twiggs","date":"February 15, 2023","format":false,"excerpt":"Consumer price index (CPI) growth slowed to 6.3% for the 12-months to January, from 6.4% in December. Core CPI, which excludes food and energy, slowed to 5.5%, from 5.7% in December. Monthly figures show a resurgence in CPI, recording a 0.52% increase in January (6.2% annualized), while core CPI was\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"CPI & Core CPI","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-02-15-cpi.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-02-15-cpi.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-02-15-cpi.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":54437,"url":"https:\/\/thepatientinvestor.com\/index.php\/2024\/06\/13\/falling-cpi-lifts-markets\/","url_meta":{"origin":25184,"position":3},"title":"Falling CPI lifts markets","author":"Colin Twiggs","date":"June 13, 2024","format":false,"excerpt":"The Fed kept rates unchanged at their June FOMC meeting. The dot plot now projects one rate cut by year-end, compared to three cuts at the March FOMC meeting. Low CPI for May boosted financial markets, with the 10-year Treasury yield falling to 4.3%, lifting stocks higher. Precious metals also\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"10-Year Treasury Yield","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-06-12-tnx.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-06-12-tnx.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-06-12-tnx.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":41631,"url":"https:\/\/thepatientinvestor.com\/index.php\/2023\/04\/13\/inflation-ebbs-and-flows\/","url_meta":{"origin":25184,"position":4},"title":"Inflation ebbs (and flows)","author":"Colin Twiggs","date":"April 13, 2023","format":false,"excerpt":"The consumer price index (red below) declined sharply to 5.0% for the 12 months to March, compared to 6.0% in February. But core CPI increased slightly to 5.6%, from 5.5% one month earlier. Monthly core CPI was softer, at 0.38%, but the rate seems to be steadying at around 0.4%,\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"CPI & Core CPI","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-04-12-cpi.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-04-12-cpi.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-04-12-cpi.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":49845,"url":"https:\/\/thepatientinvestor.com\/index.php\/2024\/03\/13\/energy-prices-drive-cpi-and-lt-interest-rates\/","url_meta":{"origin":25184,"position":5},"title":"Energy prices drive CPI and LT interest rates","author":"Colin Twiggs","date":"March 13, 2024","format":false,"excerpt":"After a brief respite, the S&P 500 resumed its strong up-trend, closing at a new high of 5175. Trend Index troughs high above zero continue to signal unusual buying pressure. The up-trend is typical of Stage 3 of a bull market:\u00a0 rampant speculation dominates and price advances are based on\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"S&P 500","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-03-13-spx.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-03-13-spx.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-03-13-spx.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/25184","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=25184"}],"version-history":[{"count":3,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/25184\/revisions"}],"predecessor-version":[{"id":25278,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/25184\/revisions\/25278"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=25184"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=25184"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=25184"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}