Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Feel the Inflationary Heartbeat

Economics / Inflation Jun 21, 2021 - 11:56 AM GMT

By: John_Mauldin

Economics Not all inflation is created equal. Peter Boockvar, CIO at Bleakley Advisory Group, has his finger on the economy’s pulse. And for the last year or so, he’s felt an inflationary heartbeat.

Peter, who is the author of The Boock Report, in which he flash-analyzes the latest economic data in handy bite-size multiple emails per day, makes an important distinction between goods inflation and services inflation.

At Mauldin Economics' 2021 Strategic Investment Conference in May, Peter explained that they have been behaving differently. Looking at services inflation (ex-energy) within the Consumer Price Index, he showed that it averaged around 2.8% in the 20-year period leading up to the pandemic.





Source: Peter Boockvar

These services are the non-tangible things you can’t put in your pocket but are nonetheless valuable: rent, healthcare, college tuition, insurance, entertainment, etc.

Usually, we expect their price to rise every year. Our only question is, by how much.

Peter’s data says the answer has been around 2.8% a year. Sometimes a bit more or less, but rarely flat and never negative.

Take away the Great Recession, and the average is much higher. (Of course, your mileage may vary, depending on where you live.)

Goods, on the other hand, are the material objects and substances we buy in stores or have shipped to us: food, energy, cars, furniture, toys, lawnmowers, and so on. These prices have more variation than we usually see in services and often even go down.

The 20-year pre-COVID net, looking at the CPI Core Goods component, showed no change at all.



Source: Peter Boockvar

If you never expected to see 0% inflation, now you have. But that’s only in goods—inflation in services pulled the full CPI higher.

How do we explain this discrepancy?

Two key factors are China and globalization. Goods inflation turned into stability, and often deflation, right about the time China joined the World Trade Organization (2001) and began exporting low-priced goods. But it wasn’t just China; globalized goods production really took off at that point.

The reversal of this strong disinflationary influence is one reason Peter expects inflation. It’s not entirely virus-driven; globalization has been slowing for other reasons. But the pandemic stepped on the brakes even harder.

In early 2020, when China basically shut down, we saw how vulnerable these ocean-spanning supply chains can be to events on the other side.

Meanwhile, staying home renewed our demand for various physical stuff. If you can’t go to concerts anymore, maybe you buy better home electronics—or a bigger home, which means you (or your contractor) buy more construction material, tools, etc.

Now we see shipping rates and container traffic rising sharply. This isn’t coincidence.

The global economy was optimized to deliver something else. Now has to suddenly satisfy new consumer preferences. That drives prices up.

Throw in the fact that many transportation companies went bankrupt over the past few years, and the supply of transportation companies all along the supply chain was reduced, and thus the prices paid to the survivors have increased.

If services inflation simply continues as it has, and goods inflation rises above the 0% level where it’s been for years, we should expect higher total inflation. But there’s reason to think services inflation will accelerate even more.

Buying services really means you’re buying some type of labor.
  • In a restaurant, the food itself costs something, as does the building. But a large part of the bill, maybe most of it, is wages and tips for the cooks, bartenders, and waitstaff.
  • In a hair salon or physician’s office, you pay mostly for professional time and skill. There is a close connection between services inflation and wage inflation.

Now look at what happened since last year.

The pandemic and its associated restrictions hit the service sector like a neutron bomb. The US government acted, appropriately, to help the millions rendered suddenly jobless. But as often happens, their methods weren’t targeted well. This, combined with the new hazards and hassles of in-person work during a pandemic, reduced the labor supply.

With the recovery now underway, employers need workers again and often have to pay higher wages to get them. That means even more service inflation, on top of the prior 2.8%+ annual growth.

Add in new goods inflation, and Peter doesn’t see how we could avoid a new inflationary cycle. The question is, how long will it last?

It looks like we are about to find out.

The Great Reset: The Collapse of the Biggest Bubble in History

New York Times best seller and renowned financial expert John Mauldin predicts an unprecedented financial crisis that could be triggered in the next five years. Most investors seem completely unaware of the relentless pressure that’s building right now. Learn more here.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in