The Rising Cost of Inflation
How inflation will kill the U.S. dollar
America's purchasing power will erode at the current rate. Learn more about why the stimulus plan is distorting the economy.
Last month we hit Peak Inflation
Consumer prices hit a 13 year high in April. The CPI, which tracks a basket of consumer goods, hit 0.8%. Compounded this is 9.6% annually! U.S. inflation is now hovering around 4.2%.
The problem is supply cannot keep up with demand. Cars, furniture, flights, everything is out of stock.
If you think consumer spending will spike this summer, you’d be right.
But I don’t think it is sustainable. Costs will go up but spending will decline once the labor force is working again.
Counterintuitive but the stimulus checks are fueling a lot of the spending demand today.
Big picture: Inflation will rise sharply and businesses will be forced to pass on the costs to customers.
The rising cost of lumber
Housing prices have skyrocketed in the past year. The two primary factors are the demand to work from home and the shortage of housing inventory.
But if you look at the numbers, housing developers are getting crushed. Why? The price of lumber increased by 377% in one year.
The Visual Capitalist shows that last year $50k in lumber could have built ~10 single family homes. Today you can only afford to build 2 homes with that much in lumber.
Expect the average cost increase of $36,000 per home to be passed down to the consumer.
Consumer Spending is distorted
First, trillions of dollars in stimulus have inflated spending AND investing. We have flooded the country with so much money that every assets has increased in value.
Second, interest rates are too low.
Consumers aren’t making enough by saving. They are forced to spend or invest in risky assets.
With the way things are going, I think the middle class will get crushed. Costs will continue to rise because of excess demand from stimulus instead of wage inflation.
You see, if people were making more money by working than we could justify inflation with consumer spending.
But today spending is artificial and wont last forever.
I recommend watching Buffett’s response on raising prices and his outlook on substantial inflation. He’s seeing costs rise across the board.
P.S. Don’t hedge with Bitcoin unless you understand the consequences. It is not a store of value...yet.
P.P.S. Check out my latest course to improve your investment process.
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