By Nick Massey
February 1, 2022

Inflation – Phase Two

More inflation is expected as businesses struggle with labor shortage and supply-chain issues.
Vacuum sucking up money

Caution!!!!! It is beginning, and it’s already here. Inflation that is. It brings up mental images of a Godzilla-like creature stomping down our streets and striking terror in all of us. Well maybe not that bad, but it is certainly here and coming for you. We might actually call this the Second Phase of Inflation. The first was last year as we started to see signs of it everywhere. The Federal Reserve said inflation was only transitory. While I think that might still be true, it looks like it will take a lot longer to work through the problems than anyone anticipated. Now the blame game starts.

We know that much of the problem is due to supply chain interruptions. Either manufacturers can’t get what they need in a timely matter to make what they make, or they can do that but can’t get it shipped to the customer in a timely manner. Or both. We’ve all seen pictures and heard stories of ships waiting at sea, or shipping ports overflowing with goods because of a shortage of trucks to take it somewhere. It goes on and on, and all of this adds to prices. Adding to that problem is the fact that many businesses can’t get the workers they need, and we are starting to see wage/price inflation starting.

Then there are the stories that accuse companies of price gouging and taking advantage. A good example is oil. It seems that some people think that you go to the oil store and the oil store decides to raise prices one day just to take advantage of you. And you have no choice but to buy from the oil store because there are no other oil stores. The reality is that oil is a globally traded commodity with prices set by international supply and demand factors. Oil companies may benefit from higher prices, but do not create them. It is a combination of many macroeconomic factors. Unfortunately, there is a shocking level of ignorance among some policy makers; so much so that I wonder if they are just being disingenuous. Either way, we’re out of luck because a lot of people believe this.

So this is what I think is going to happen next – we are going to blame private firms for higher prices. Actually, it’s already started. Just listen to some of the press conferences. I don’t know the history exactly, but I suspect this is what was happening in the early 1970s around Nixon’s wage and price controls. And by the way, price controls may be attempted next. I hope not because it didn’t work. But if inflation gets close to 10 percent, I think we could have a repeat of the wage and price controls, which could end up making inflation worse. I hope I’m wrong on that one.

We’re going to blame lumber stores for high lumber prices, we’re going to blame meatpackers for high meat prices, we’re going to blame oil companies for higher oil prices, and everything in between. Which causes us to not be terribly introspective about the cause of inflation. You don’t have to be an economist to understand inflation when almost everything you buy costs more. Most people don’t understand why and don’t care. They just want the problem fixed. I will resist the temptation to point fingers where the blame lies. I’m sure you have your own thoughts on that.

The Fed hasn’t been much help and may be behind the curve again. Former Fed Chair Janet Yellon says “Her only regret as Fed Chair is low inflation.” Current Fed chair Jerome Powell says “low inflation is one of the major challenges of our time.” I guess they got their wish but now they’ve got a tiger by the tail, so to speak, and in my opinion, are going to have quite a time bringing it under control without crashing the economy in the process. Many agencies concur in predicting that CPI inflation will decrease in 2022. I hope they’re right, but I’ll believe that when I see it.

For the time being, I believe that inflation is close to spiraling out of control. I’m sure you can all tell stories about supplies of all kinds of things being in short supply as you look at grocery store shelves mostly empty. If not empty, the prices have jumped dramatically. I am still hopeful that the supply chain issues will start to get back to normal by the end of 2022 or early 2023. We’ll see.

Speaking of policymakers and spokespeople with their heads in inappropriate places, the whole thing about blaming “Big Meat” is just hilarious and also a wicked double entendre. They raised prices on meat at the meat store, therefore it must be greedy meat corporations. Elizabeth Warren said, “Wondering why your Thanksgiving groceries cost more this year? It’s because greedy corporations are charging Americans extra just to keep their stock prices high. This is outrageous.” This is like a 4th grade level of economic sophistication. It’s not surprising because these are people who studied English and Law and spent their entire careers in the public sector. You know I’m a big fan of Hanlon’s razor (“never attribute to malice that which is adequately explained by stupidity”), but sometimes it’s hard to believe that people can be this dumb.

Not that I really need to debunk this for most of you, because I am preaching to the converted. There’s plenty of beef. The bottlenecks are in the slaughterhouses and the packing and the trucking and the shipping. You probably heard that it’s not easy finding truck drivers these days. I have heard lots of stories from around the country about grocery stores running out of meat, but for the time being in Oklahoma, we have some. It is a little picked over, but we have some.

A word of warning to the lawmakers – I would not mess with the meat guys if I were you. The bankers you can mess with; they’ll roll over and comply with whatever regulations you dream up. I grew up in Iowa and I’ve met the meat guys. They’re tough guys, they wear checkered shirts and trucker hats, and they live in places like Nebraska and Iowa. I can assure you they’re not afraid of Elizabeth Warren and the like.

Okay. I feel better now. Thanks for reading.

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About Nick Massey

Nick Massey is President of Massey Financial Services in Edmond, OK. Nick can be reached at www.masseyfs.com. Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Householder Group Estate and Retirement Specialists, LLC, a registered investment adviser. Massey Financial Services, LLC and Householder Group Estate & Retirement Specialists, LLC are separate entities from LPL Financial.