What If Inflation Is Here to Stay?

China announced this morning that its producer price index, which measures production costs, rose 9% from a year ago.

That’s the fastest rise since September 2008. Another data point that got lost in the numbers is the fact that approximately 70% of companies are reporting a gross profit margin below 15%.

What’s China doing? Injecting the economy with stimulus aimed at helping small businesses get through the “transitory” inflation that seems to be moving its way through all corners of the world.

Sound familiar?

Look at the oil price, look at corn, look at copper, go find ketchup, look at everything on your grocery list.

Tried hiring anyone lately?

Tried building something or buying a new vehicle recently?

 
 
I have a friend who recently tried both, building a pool and buying a new truck. Both are in such short supply that materials for his pool are 6-9 months out. His truck? Same.

The Fed knows inflation is not transitory just like commodities know it. Which is why commodities are at all-time highs and the Fed is rushing to soak up liquidity.

The Fed’s reverse repo program just attracted $486.1 billion in cash — an all-time high — on Monday.

For those not familiar, the Federal Reserve’s reverse repurchase facility allows financial institutions to lend to the U.S. central bank at a 0% interest rate.
 
That’s a long winded way of saying there is so much cash in the system that the Fed is stepping in to try and mop up some of that excess liquidity at a 0% interest rate. You try that at your local bank.

Wealth inequality and persistent  —  not transitory —  inflation isn’t just a nuisance to my friend who worked hard to afford a pool and a new truck, it is a direct threat to everyone living paycheck to paycheck in subtle and more direct ways. 
 
 
Not being able to build a pool or buy a new truck is a hassle.

Not being able to afford (or find) food or shelter is a threat. And if we are not able to start implementing fiscal and monetary policy that works for more than just the better off among us —  me included — then I fear the alternative will be chaotic.

The past several months we’ve been able to blame supply disruptions, inflation, and everything under the moon on the coronavirus pandemic and the consequences of shutting down the global economy.

That ship has sailed and given central bankers and politicians’ track record, I advise you revisit your contingency plans during the early days of the covid pandemic, make a list of the essentials and stock them just in case.  

Not doomsday amounts.

Just enough to get you and your neighbors by if I’m right.
 
Let's get it!
Gerardo Del Real

Gerardo Del Real
Editor, Daily Profit Cycle


For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Daily Profit Cycle, Junior Resource Monthly, and Junior Resource Trader. For more about Gerardo, check out his editor page.

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