This Week’s Economic Update, February 14, 2022

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The supply chain shortages know no shame.  Even something that most believe is not all that great is now in short supply.  For those in the North East, particularly Maine, you will recognize the Moxie brand of pop.  Yes, in Minnesota, soda is called pop.  Moxie was first produced in 1876 and sold as a “Nerve Food” effective against paralysis, softening of the brain, anxiety and insomnia.  Softening of the brain?  So, this medicine beverage took off even though the claims were completely fraudulent.  The pop is like a root beer but with a more bitter, medicine like aftertaste.  In 2005 it was named the official soft drink of the State of Maine where every July in Lisbon Maine they have a festival to celebrate Moxie.  Well, the pop is in extremely short supply and the organizers are very concerned that this year’s festival, the first since 2019 due to covid, could be a celebration without it’s primary subject.  From news reports, it is not the aluminum for cans that is an issue, but the spices that create the bitter aftertaste that are unavailable. I will keep an eye on this story to see what bubbles up.

Not a lot of reports for the past week, however, the reports that were released were bombshells.

The oil market continues to be an issue.  The past week supplies for both crude oil as well as gasoline dropped significantly.  On top of the declines, the refining levels are not keeping up with demand.  As our supplies diminish, we become more susceptible to world supply shocks, including a possible disruption due to the tinder box known as the Ukraine.  Europe needs oil as much as we do.  The problem is what happens to the deliveries from Russia if the Ukraine is invaded?  The estimates I have seen predict oil hitting $150 per barrel if Russia makes a move.  This is comparable if not a bit higher than 2008 when we saw gas in the Midwest at over $4.00 a gallon.  How long this supply interruption would last is anyone’s guess.  Where would the replacement supply come from?  Possibly Iran and Venezuela where their supplies are off the market for the most part.  Another bright spot is the US Oil Rig count.  It increased this last week from 603 to 635, the largest one week jump since 2019. 

If only our temperatures were as hot as the inflation numbers, Spring would be here.  The core CPI for January was .6% which equates to 7.2% annually if continued.  The core CPI includes energy and food, which were the two leading areas of price increases for the month.  This is an area that is typically not impacted by changes in interest rates.  These are staple products that consumers have to buy and eat any price increases.  No pun intended.  The speculation this past week has been all over the place on the number and intensity of interest rate increases coming in the next 12 months.  Because of the oil market, the inflation numbers, as well as the anticipated increase in interest rates that will impact business borrowing as well as consumer credit availability, there is little chance we are going to avoid a period of 1970’s stagflation.  Our best bet might be to try and locate the buttons from the 70’s during the Ford Administration that said WIN-  Whip Inflation Now.  As I recall, they didn’t work, but at least they made people feel like they did something.

Have a great week.



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