It isn’t your imagination. Prices are going up. Food is costing more. Gas is costing more. Anything imported from China is costing more. It doesn’t take Warren Buffett to tell you that inflation is here and “that the companies that will be best suited for this environment will be ones that either have unique products and services or aren’t as dependent on purchasing inflation sensitive goods.”
The bottom line is that the FOMC will be raising interest rates — probably not at their Tuesday meeting, but at their June 29 meeting. So say the experts, and frankly the FOMC does not like to move unless the experts know it’s coming. But since Reuters and the Associated Press both see it coming, a hike in interest rates shouldn’t surprise anybody who keeps track of these things. Lock in those Adjustable Rate Mortgages now, alright? And don’t say I didn’t warn you.
One of the more important things about the currently beginning round of inflation is that the items in question are not things we can do without. Everybody eats food. Of course, shoppers are doing everything they can think of to pay less for food. Who can blame them? Maybe that’s why grocery chain Winn-Dixie is planning on selling or closing 156 stores. Insert obligatory comment of what you think of Winn-Dixie, but the fact is they can’t compete on price, and they’ve never been known for competing on quality.
As for gasoline, even if you don’t own a car you probably depend on the stuff. Indeed, if you are reading this site on a computer, that computer had to be transported to where it sits from the factory. Chances are it rode in a truck for at least part of that journey. At least be cheered by the fact that truckers aren’t happy about rising fuel prices either. The bottom line is that gas prices are continuing to go up, that Trilby Lundberg will continue to announce record high gas prices as needed through the summer, and that Big Oil will make a lot of money.
Oh yes. And then there’s China. Part of our inflation problem is that China is experiencing inflation, and their currency is linked to ours. This of course means anything they export to the United States has to cost more to cover the increased costs of manufacture. This is a big problem. Just look at some random country of manufacture tags around your home and in stores. A lot of goods come from China. And why does China have an inflation problem? Because of the Weak Dollar. Frequent readers know that the Weak Dollar policy is allowed by the current administration for several reasons, including a misguided belief that it will improve the trade deficit. But this policy had another consequence: oil is pretty much bought and sold in American dollars around the world; the Weak Dollar means OPEC feels they can’t afford to keep oil prices low.
The high price of gas and the rising price of Chinese goods are inextricably linked by the Weak Dollar. This leads to higher prices for everything, including food. The cycle feeds itself.
The good news is that Wall Street has another word for inflation: “Pricing Power.”