This Week’s Economic Update, November 15, 2021

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This past month a house sold in Boston, MA for $315,000.  The house was listed at $450,000.  Why the discount and the low price in a hot market?  Well, the square footage of this structure is 250 all in.  It is on a lot size of .06 acres.  A couple of years ago tiny homes became the rage as those who desired a minimalist living jumped on the fad.  That fad has faded.  It was a throwback to the late 1800’s, early 1900’s where bachelor shacks were built across the nation for unattached men who were satisfied with single room living and an outdoor biffy.  Some towns still have those structures but most have been torn down. For those who do wish to uncomplicate their lives, a smaller dwelling might be just the answer; affordable, compact to a point where you have to go outside to change your mind and if you are disciplined, uncluttered.

Watch Eastern Europe.  Turkey, Belarus, Russia, Ukraine, Poland and Latvia are a hot mess.  Migrants from Syria, Yemen and Iraq are congregating at the border of Belarus.  Poland and the Ukraine are balking at allowing the migrants to enter.  The EU is threatening more sanctions against Belarus for allowing the migrants to pressure the borders.  Turkey, until last week, was providing visas and airflights from Istanbul to Belarus for the migrants.  A humanitarian crisis is building as winter approaches.  Russia is backing Belarus who is threatening to cut off oil supplies that run through pipelines that cross their country if the EU does not allow the migrants open access to move throughout Europe.  Last week both sides of the borders saw movements of troops being put in place in the event this turns ugly. 

The tension in Eastern Europe is exasperating the energy crisis that is building worldwide.  Oil, fuel oil, gasoline, natural gas and propane are worldwide commodities impacted by worldwide demand and supply factors.  As Winter approaches Europe is in need of energy to provide heat in the cold.  While they put their faith in Russian supplies coming through pipelines, this year has proven that they have entered into agreements with an unreliable partner.  Europe currently has record low inventories of supply creating price increases that have been unseen in years.  As supplies are being re-routed to Europe, our prices are going up.  The most concerning is heating oil and propane.  Propane prices are now hitting highs achieved at the last peak, 2012 to 2014.  Shortages this year are likely to rival that period.  Heating oil prices were still well below the 2012-2014 peak.  In 2018 fuel oil prices were about $61 before the bottom fell out of the market.  Last year at this time the price was $30, now it is approaching $70.  Depending on the severity of the winter and where our supply levels end up, we could see prices back above $80 by early next year. This may put a crimp on the economy.

This past week the inflation numbers came out.  The Producer Price Index posted a gain of .6% for the month and 8.6% year over year.  The push points were in energy prices and transportation areas such as vehicle prices.  Most prices used by producers rose only moderately.  The Core Consumer Inflation rate rose .6% in October with a year over year level of 4.6%.  These levels are the highest since 1991.  The core removes food and energy and was highly influenced by the cost of vehicles which rose 2.5%.  The overall inflation increase in October, which would include energy and food was .9%.  Energy prices rose 4.8% during October while food prices increased .9%. 

If things are not bad enough, watch for coffee prices to begin to perk.  A global shortage is caffinating the cost of beans.  The prices have already hit 7 year highs which could keep you up at night.  Weather issues in Brazil are just part of it.  Like with many products, shipping issues are causing price increases. Freight costs have doubled in the past 12 months.  The pandemic has left a mark as shortages of workers who pick the beans have production grinding to a halt.  Puns intended.

Have a great week.



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