Here’s what you can blame for everything so expensive

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Maybe just half a tank today.
Photo: Xinhua News Agency / Xinhua News Agency via Getty Ima

Are you feeling a little more broke than usual? The federal government today released its assessment of the inflation rate, officially the Consumer Price Index, and the numbers are higher than experts predicted – and higher than at any other time . since 1982. Gas increased by 58% compared to last year. Beef is also 21% more expensive. And the cost of heating your home with oil is going to cost 59% more than it did during the holiday season. On average, prices rose 6.8% from a year ago, a sign that costs accelerated last month from the annual peak of 6.2% recorded in October. Taken in isolation, this isn’t a heartwarming trend, however salary increase and one strong labor market soften the blow for many. Yet the economy is in a strange place – Wall Street thinks things are going great – as businesses around the world continue to grapple with the pandemic.

Inflation – at least at current levels – has long been seen as the sworn enemy of a healthy economy. He sank Jimmy Carter’s presidency and created a decade of economic turmoil in the late ’70s and early’ 80s. Things haven’t deteriorated yet, but there are fears it is getting out of hand. So how long can this still last? President Joe Biden tried to beat the numbers on Thursday, saying things were already refresh, largely reflecting lower gasoline prices, which will not be reflected in the CPI until next month. Federal Reserve Chairman Jerome Powell has indicated he will act to tighten money flows in the economy faster than expected – a risky move designed to keep demand under control. That is, if there is less money for everyone, then people will not be so willing to buy all the stuff that gets more and more expensive from month to month. The downside to the strategy, however, is that it could bring down financial markets as well – as happened in late 2018, before Powell backed down and activated the money taps again. But the reality is that much of what is behind the price hikes is beyond anyone’s control. Think of it as the biggest Ouija board in the world, with billions of hands – including American consumers and Russian oil oligarchs and Asian factory workers – all pushing the board to a number on the board, and no one really knows where it’s going to land. But there are three factors that played a particularly big role in the increase in November’s inflation numbers – and possibly your monthly credit card bill.

The supply chain is still fucked up

One of the clearest ways to understand why prices are rising is to track how physical goods have stayed in place. This is usually what is meant when people refer to supply chain issues, to an interconnected global network of manufacturers, ships, ports, trucks and deliveries meant to put goods between. hands of you, the consumer. Normally things go pretty well, but wave after wave of COVID infections in places like Vietnam – the sixth– the largest supplier of goods to the United States – pushed back manufacturing, leading to a domino effect for everything down the chain.

This summer and fall the backlog of containers at major ports was so large that a ship waited nearly eight weeks before being able to dock and unload its cargo, according to the The Wall Street Journal. Faced with bare shelves and delays, stores began to raise the prices of the products they had. The Biden administration has offered billions of funds to keep the flow of goods going, and while delays have eased since then, it has more to do with conditions. better in Asia. Still, there is reason to believe that things are slowly returning to normal. “It looks like we’ve passed the worst,” Paul Gruenwald, chief global economist at S&P Global Ratings, told Intelligencer. But the recovery was not uniform in the country’s ports. In March, before prices really started to rise, it took just under 20 hours for goods delivered to the New York and New Jersey Port Authority to unload, according to agency data. Now it takes about 32 hours. “Our analysts looking at this sector find another six months of varying degrees of rigidity and congestion in the supply chain,” added Gruenwald. This shows that even if a growl in the supply chain slackens, another problem – say, a shortage of truckers – could make matters worse.

Energy prices soared in November

Earlier this year, concerns about persistent inflation weren’t taken very seriously as the price hike was focused on things like rental cars – not a major recurring cost for most people, and something something that had a lot to do with the bankruptcy of Hertz during the first months of the pandemic. Now it’s all about soaring oil and gas prices – the lifeblood of the economy, the way most people heat their homes and get to work. It was bad enough for the Biden administration to release 50 million barrels of oil from its strategic reserves, enough to cover the country’s energy needs for more than five days.

Data for November also seems to reflect the price spike. Last month, a barrel of oil hit a high of $ 85, more than double from a year ago. Since then, it has fallen to just over $ 70, due to the brief panic over omicron and an increase in production from oil-producing countries. When prices are this high, shale producers in the United States also tend to start pulling oil out of the ground, as the high prices justify the expensive labor. “The prices are still high. They’re in the 1970s. But the inflation part of this story is over. We don’t think the prices will go up from here, ”said Gruenwald.

People are always spending their stimulus money

In the past two years, an unprecedented $ 5,000 billion has been sent directly to American citizens and businesses to prevent families from starving and businesses from shutting down while states have ordered people to stay at home. At the same time, the Fed has kept interest rates at virtually zero, making borrowing money for things like a house or a car cheaper and easier than it has been since. years. With additional social programs like the Child Tax Credit, the financial buffers are more stable than ever for more people. The result? There is more money in the system and consumers have been doing what they do best – buying stuff, price and supply chain to hell. “Demand across the economy has recovered much faster than most households and businesses anticipated,” said Joel Prakken, chief US economist for IHS Markit.

On the other side of the supply and demand equation, American companies also played a role in the price hikes. SOEs have had one of their best profit seasons in the last quarter, boosted not only by the stimulus money leaving customers’ accounts, but also by the subsidies that have come directly from the government for businesses. . This gave them the ability to raise prices, even on products that didn’t face supply chain issues. “This puts sellers in the driver’s seat in terms of being able to raise prices without fear of losing market share,” Prakken said. As businesses prepare to use some of that money to raise workers’ wages next year, any pay hike will likely come when the Fed slows down the economy. Powell has signaled that he is ending a massive market stimulus program in which the central bank buys debt. After that, the central bank will likely start raising interest rates, making it more expensive to borrow a house or a car, or even just a credit card balance. This, of course, tends to dampen demand and dampen inflation. But higher rates are affecting consumers – so even if prices are now higher than normal, this might still be a good time to buy.

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