Inflation is Hot! Hot! Hot!

At 8:30am this morning the Bureau of Labor Statistics released updated data regarding the Consumer Price Index for the month of April, 2021. Within this release comes information that suggests inflation is surging at levels far higher than what economists had forecast.

Although there are several other numbers to look out for in this report, the most stunning was an increase in the CPI for all urban consumers, which rose 4.2% over the past 12 months. To put that number into perspective, this gain in the CPI is the largest in one 12 month period since the 4.9% increase in the CPI from September of 2007 to September 2008.

As a fan of automobiles, the past few months have been absolutely dreadful as I look to swap out my old wheels. With the global chip shortage persisting and a dismally small supply of used cars, the price for all vehicles have skyrocketed. According to the BLS, the average price for a used car rose 10% in April alone which was "the largest 1-month increase since...1953". To add insult to injury, the used car market alone contributed to nearly 1/3 of all price increases which were seasonally adjusted. In layman's terms, your late year model may actually be worth more than it was when you bought it new.

You know the market is all out of sorts when an early 2000's Chevrolet Tahoe with 200k miles is selling for north of $6000. You can't even buy a 2008 Miata under $15,000 let alone a juiced up sports car - if you're short on cash, forget it! If you don't need to upgrade your vehicle right now and have an extra one around, go to Kelley Blue Book to see how much your ride is worth. That's KBB.com which will give you a fair idea of what your car might be worth for a dealer trade-in or a private sale.

The food prices index rose .4% which means that your ice cream at the grocery store and fast food burgers just got a little more expensive. Digging through more numbers suggests that the price of fruits and vegetables have risen the most, by nearly 3.3% over the past 12 months! These price hikes disadvantage lower-income shoppers the most who already rely on putting their dollars towards meals which provide the greatest value. When fruits and vegetables disappear from an individual's diet, negative health outcomes appear.

One of the most significant pieces of data came from the index "for all items less food and energy" which rose .9% last month which was the largest monthly increase since April of 1982. Effectively, this past month rivals some of the inflation numbers we witnessed in the late 70's and early 80's as the US economy spiraled into a period of stagflation.

The increase in the CPI is due in large part to the stimulus checks and unemployment benefits which have circulated throughout the economy over the past year. An unprecedented increase in the M2 supply (monetary supply) and trillions of dollars in government spending has made the dollar worth significantly less.

I have bad news for consumers because the reality is most of these prices are here to stay. Generally, throughout the history of the United States, deflationary prices have rarely occurred - generally only under periods of economic contraction. As a result, the price hikes which we are witnessing today are likely to become the price floors of tomorrow. Increases in the CPI are generally mirrored by strong wage gains to compensate for higher prices of goods and services. With that said, the BLS reported that real wage growth in March of this year was actually negative as wages grew .7% but overall prices rose .8%.

If wages do not rise in concurrence with the CPI it is likely that far more sinister things may emerge as consumers fight to spread their dollar as thinly as possible. I suspect that many Americans are shying away from returning to work as wage gains have been dismal even as prices increase. The labor force participation rate is far below pre-pandemic levels, and only 226k jobs were added last month versus expectations which were pegged at over 1 million. My gut instinct tells me that people are surviving on unemployment benefits for their most basic needs and stretching their savings for extraneous purchases. Those who are unemployed that wish to re-enter the economy are looking for wages that can cover the rising cost of basic expenses. It's a very exciting time to see the interaction between those who are employers and those who are unemployed. My latest article from GenZForAmerica attempts to break down how laborers currently have the upper hand in the jobs market.