Inflationary Trends Irrefutable, Consumer Sentiment At 10-Year Low

Consumer prices rose by an absurd 5.3 percent in August. This year-over-year increase in the CPI is the highest in 13 years.

— Steve’s Marketplace —

Editor’s note: Contributing columnist, Steve Nicklas, expresses his views and insight on various topics in Marketplace.

Prices are going up, while consumer/business sentiment is going down. It’s an economic seesaw that nobody wants to ride – but we don’t have a choice. It’s the only ride in town. 

If you’ve bought gas in Nassau County, or groceries at your local Publix, the price increases are obvious. You’d have to be wearing a blindfold to miss these inflationary trends. And when the costs of food and energy consume more of your wages, your confidence can get shaken and/or stirred like a martini at the The Decantery.  

This is indeed happening. The U.S. inflation numbers are irrefutable. Consumer prices rose by an absurd 5.3 percent in August. This year-over-year increase in the Consumer Price Index is the highest in 13 years. The index measures goods and services, including volatile energy and food costs. 

“The indexes for gasoline, household furnishings, food and shelter all rose in August,” according to the Bureau of Labor Statistics. It was a bit of an understatement, however. 

Not to be overshadowed, consumer sentiment has declined to its lowest level in 10 years. And critical small-business optimism is at eight-year lows. All the while, difficulties in hiring are the worst since the 1970s. 

An explosion in the money supply created by federal bureaucrats has complicated the equation, as the U.S. economy rebounds forcefully from the pandemic. It’s like pouring gasoline on a roaring fire. Yes, the economy can overheat – producing flames of inflation. And the flames are difficult to douse. 

Cheap, loose money causes other problems. For instance, people won’t work and will instead rely on government subsidies. Thus, you have a labor shortage. We have examples of this locally. In some states, a family can receive close to $100,000 a year by sitting at home. 

Meanwhile, the tourism industry on Amelia Island is wheezing like a heavy smoker. And it’s not because of a lack of demand. It’s from an inadequate supply of workers, a shortcoming that appears difficult to address. In turn, labor shortages also drive up costs, through higher wages for instance. 

In addition, the costs for local restaurants have ballooned due to inflationary pressures on food. Have you noticed chicken prices, due in part to interruptions at poultry plants from the virus? And prices of beef are already up 14 percent.

It’s so bad that a major grocery chain has waved a warning flag like at a NASCAR racetrack. Kroger has announced that inflation is “running longer than management anticipated” and that prices will steadily increase the rest of this year. 

Again, some of the price increase is from a shortage of supply due to virus afflictions. Some is from cybersecurity hacks. The rest is from inflation caused by loose money. 

We’ve witnessed runaway inflation in the 1980s, under then-President Jimmy Carter. It’s possible again. Back then, interest rates spiked into the double digits, pushing up borrowing costs and slowing the U.S. economy. 

More government spending is on the horizon. To the tune of $3 trillion. Government lawmakers are primarily behind it, but Federal Reserve officials are refilling the punch bowl with regularity. 

Fed officials are keeping their foot on the gas pedal by printing an excess supply of money while pushing down interest rates (through bond purchases). This can exacerbate inflationary pressures, which the Fed passes off as “transitory.” Sort of like cracks in an ice-covered lake.  

Commodity prices are soaring, from coffee to aluminum. Just look at hard assets like real estate. And oil prices have nearly doubled in eight months as the Biden administration restricts production out of environmental concerns. This reduces supply, pushing up prices. And higher gasoline prices add to transportation costs, which are passed on to retailers – and in turn, to the consumer.  

Here’s another ironic twist and turn. How much will vaccine mandates hinder the hiring of retail clerks, restaurant servers, truck drivers, etc. These lines of work provide products and services to the consumer. Obviously, the outlook in these sectors is murky. It’s no wonder consumer sentiment is slipping – like on an ice-covered lake, with cracks already showing. 

Steve Nicklas Financial Advisor
Steve Nicklas

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Steve Nicklas is a financial adviser with a regional brokerage firm who lives and works on Amelia Island. He is also an award-winning columnist. His columns also regularly appear in several weekly newspapers in North Florida, and on his website at SteveNicklasMarketplace.com. He has published a book, “All About Money,” of his favorite columns from the past 20 years. The book is available on Amazon. He can be reached at 904-753-0236 or at [email protected]