This may come as a shock, but inflation is brewing across the globe. As small businesses plan to raise prices to cope with a tight labor market, beleaguered supply chains, and climbing production costs, rent inflation is soaring and a strangled energy market could send U.S. heating costs as much as 30% higher this winter. And while some of these price spikes may be transitory, one tends to be a bit stickier… Could that be why mentions of “stagflation” in the news have more than doubled—off a decade+ high—in just the past few months? The tight labor market and signs of climbing wage inflation have also amplified expectations around Fed rate hikes and talk of a QE taper is rarely far behind. But have you checked in on central bank balance sheets lately? Finally, as commodities surge and inflation indicators also creep up in China and India, earnings season is officially underway and we’re wondering: have earnings beats—already at a record—finally peaked?
1. CPI came in as expected last month at a 5.4% annualized rate, but this is puzzling as some rather important items like food and shelter increased by several multiples of CPI:
Source: The Daily Shot, from 10/14/21
2. Small businesses continue to pass through their higher wages and other cost increases:
Source: The Daily Shot, from 10/14/21
3. We all know what housing and rental costs have done:
Source: Pantheon Macroeconomics, from 10/14/21
4. Our own Department of Energy sees a massive increase in heating costs this winter. This will also affect other energy costs including gasoline:
Source: EIA, from 10/14/21
5. Will higher energy costs be transitory? Again, the supply chain issues for coal and natural gas will likely moderate over time, but higher energy costs will not help consumers and manufacturing alike. Inflation can also be imported:
Source: Gavekal Research, from 10/13/21
6. Most of the price increases due to supply chain issues should be temporary. Yet wage increases, barring extreme economic events, tend to be permanent.
Source: Deutsche Bank Research, from 10/13/21
7. Inflation that really hurts! Seriously, the price spike has caused many growers to renege on ~1 million bags of coffee in Columbia alone:
Source: The Daily Shot, from 10/14/21
8. Great news for recipients, but will this just quicken the insolvency of the Social Security Trust, forcing additional government debt?
Source: Social Security Administration, from 10/13/21
9. When the Fed tapers, it will not be alone, and the amount of debt is massive:
Source: BIS, from 10/13/21
10. Since February of 2020, the ECB has financed 95% of all government debt in the European Union. If they begin to taper, who will buy all these bonds, and at what interest rates?
Source: ING, from 10/14/21
11. Great news! Yet these easy comps to the Covid shutdown are ending…
Source: Scotiabank Economics, from 10/14/21
12. Many commodity prices are surging; metals are near an all-time high:
Source: The Daily Shot, from 10/14/21
13. While China’s CPI came in below 1%, primarily due to their real estate bubble beginning to break, regulatory actions, and falling food (pork) prices, is there is a reckoning on the way?
Source: The Daily Shot, from 10/14/21
14. While India’s CPI has been moderating, their coal supply issues are shared with many Asian nations:
Source: Bloomberg, from 10/13/21
15. Finally, the port problem is getting worse:
- Together, LA and Long Beach move more than 25% of American imports, the WSJ reports.
- But loads of containers are stuck there, and 81 cargo ships are hanging out in the Pacific Ocean waiting to dock and unload as of Monday.
Source: Mario Tama & Getty Images, from 10/14/21