The Real Threat of Inflation?
Continuing from The Irrelevance of Velocity?...
With all the hyperbole in the narrative regarding inflation, below we find some cogent observations in the current condition. From Danielle DiMartino-Booth: Inflation's Real Threat To The Economy...
In the wake of the January jobs report, few economists noted the shortened work week largely offset the increase in hourly earnings.
We noticed and Nattered said short coming to many who were transfixed upon the glossy lipstick which has been smeared on the pig. And now this very telling observation...
As for what is still building in the pipeline, at 59.1, supplier deliveries have not fallen back to the levels that preceded the hurricanes and wildfires that hit both coasts beginning last fall. That implies that bottlenecks have continued to gum up the supply chain. Not only does this complicate planning on factory floors, it necessitates price increases on suppliers' parts. Margin squeezes naturally follow for their customers.
The astute observation above contains the answer to the demand portion of the question posed: What drove up demand and price in those inputs?
Answer: Following Harvey, Irma and the West Coast fires, many economic statistics, including autos and the cost of lean stocked inputs to rebuild were boosted substantially.
This necessitates a closer look at the devil or detail in the Supplier Index.
As for the wage gains taking hold, even with advertised "tame 2% inflation" those nominal gains were NOT translated into REAL (inflation adjusted) wage increases (which were negative) or purchasing power.
Not even a status quo for John Q. with the Dickensian wage bump. All it took was oil going from $25 - $65 over the last two years, $45 - $65 since July 2017, to absorb all the nominal wage gains. Think and reflect upon that... robust or a bust?
Begging the questions, what will rising rates do to this one legged service based economy? Worse yet, if MSM economists and pundits are buying into what amounts to a 2017 Q4 - 2018 Q1 disaster aided head fake and inflation fears, then what awaits those businesses in the supply chain who take the bait in swallowing the same hook, line and sinker? As we will be coming back to answer, chew on that gristle for awhile.
Much like Hamilton and Chin, Wen and Arias, and Snider, DiMartino Booth sees the resultant pattern, has grasp of a piece of the puzzle, but due to limitation in scope, does not fully address the underlying causes and potential consequence.
More to come in a fork in the road called A Cashless Society? stay tuned and no flippin.
With all the hyperbole in the narrative regarding inflation, below we find some cogent observations in the current condition. From Danielle DiMartino-Booth: Inflation's Real Threat To The Economy...
With all the attention focused on the stock market drama last week, it's understandable that new inflation data got lost in the shuffle. But let's not forget that rising prices are what woke the bond market from its long slumber in the first place.From what we learned in Wages: More is Less? and Wages: Less is More?... Increasing wages and constrained consumer demand are not the culprits, so what drove up prices?
Long before the wage inflation revealed by the jobs data for January was a meaningful concern, producer prices... hitting a recent six-year high.... rising input prices... to a recent three-year high.
Perceived inflation risk, based on the market's expectations for inflation over the next 10 years, rose along with the cost of raw materials. Given the pent-up demand implied by wholesale sales... reflecting widespread shortages, the January ISM report noted that Prices Paid component of its index rose to 72.7, the highest since May 2011.Answer: Increased input materials cost and lean inventory in such. What drove up demand and price in those inputs?
One of the biggest contributing factors to depleted inventories and the resultant increased prices is a lack of transportation. The shortage of truckers has become an acute problem for suppliers and poses a material threat to the economy. The number of truckers, who move 70 percent of the nation's freight by volume, has flat-lined over the past three years.Above speaks only to rising prices, and why would there be a dearth as opposed to surfeit of truckers in the first place? Not enough business, product to haul or demand for product viz. a lack in spending as reflected in aggregate demand.
The upshot is a stunting of economic growth prospects as prohibitively high transportation costs force manufacturers to raise prices and shelve potential expansion plans.The rise in transport costs are not just due to a shortage of truckers, but rising oil costs July 2017 - present $45 to $65 bbl, raising the price of all core goods in the supply chain.
For the moment, at least in the case of small businesses, employers report that they are raising wages and prices... that has filtered through to higher selling prices, which rose to a July 2014 high.Again, only speaking to rising prices. Mandatory minimum wage increases have caused nominal wages to rise. However, due to negative growth in REAL (inflation adjusted) wages, those nominal gains were not translated into increased purchasing power in aggregate demand.
In the wake of the January jobs report, few economists noted the shortened work week largely offset the increase in hourly earnings.
We noticed and Nattered said short coming to many who were transfixed upon the glossy lipstick which has been smeared on the pig. And now this very telling observation...
As for what is still building in the pipeline, at 59.1, supplier deliveries have not fallen back to the levels that preceded the hurricanes and wildfires that hit both coasts beginning last fall. That implies that bottlenecks have continued to gum up the supply chain. Not only does this complicate planning on factory floors, it necessitates price increases on suppliers' parts. Margin squeezes naturally follow for their customers.
The astute observation above contains the answer to the demand portion of the question posed: What drove up demand and price in those inputs?
Answer: Following Harvey, Irma and the West Coast fires, many economic statistics, including autos and the cost of lean stocked inputs to rebuild were boosted substantially.
This necessitates a closer look at the devil or detail in the Supplier Index.
"This is the 16th straight month of slowing supplier deliveries. Continued delivery/performance difficulties are affecting production expansion."Over 50, a higher supplier index indicates SLOWER delivery times. So even with the windfall from the disaster rebuild, deliveries continued to slow. Clearly something OTHER than wage increases and consumer demand are driving price increases and demand.
Perhaps the real culprit pressuring interest rates higher is the combined effect of constrained supplies, steeper input costs and the rising supply of Treasuries set to hit the market from two distinct sources. The real risk is that growth is thrown off course before wage gains have a chance to take hold.Take aways? Due to declining real wages, something OTHER than constrained consumer and aggregate demand is driving this economic "surge". Input materials, transport costs, lean inventory and a biblical plague of disasters all conspired to drive up prices and create a false sense of greater aggregate demand.
As for the wage gains taking hold, even with advertised "tame 2% inflation" those nominal gains were NOT translated into REAL (inflation adjusted) wage increases (which were negative) or purchasing power.
Not even a status quo for John Q. with the Dickensian wage bump. All it took was oil going from $25 - $65 over the last two years, $45 - $65 since July 2017, to absorb all the nominal wage gains. Think and reflect upon that... robust or a bust?
Begging the questions, what will rising rates do to this one legged service based economy? Worse yet, if MSM economists and pundits are buying into what amounts to a 2017 Q4 - 2018 Q1 disaster aided head fake and inflation fears, then what awaits those businesses in the supply chain who take the bait in swallowing the same hook, line and sinker? As we will be coming back to answer, chew on that gristle for awhile.
Much like Hamilton and Chin, Wen and Arias, and Snider, DiMartino Booth sees the resultant pattern, has grasp of a piece of the puzzle, but due to limitation in scope, does not fully address the underlying causes and potential consequence.
More to come in a fork in the road called A Cashless Society? stay tuned and no flippin.
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