Being mid-month with the Veterans Day holiday in the middle of the week, there were limited numbers produced in the past seven days. Inflation numbers were put out on Thursday which indicate no near term inflation on the whole. Now this was heavily impacted by the deflation we are seeing in the energy sector which offset inflation in other areas. The energy sector fell by double digits in most categories, fuel oil by 28% alone. Any increases such as in housing, new vehicles and food were muted. Used vehicle prices grew the most in the report, 11.5%. The used car market is overheated right now as many who were taking mass transit now are opting for personal vehicles to escape exposure to Covid as well as the crime that appears to be growing related to public transportation. Food, which impacts all of us the most did see a bump in inflation this past month. The trend in increasing food prices will continue, primarily eat at home food as more restrictions are placed on restaurants and colder weather makes drive thru’s less popular.
The Federal Reserve continues to take a stance that deflation is a significant concern in the economy. The stimulus actions that the Fed is taking, attempting to keep interest rates low, as well as issuing statements about how much fiscal spending is required points in a direction that seems to reflect they see something the markets might be missing. Gold, longer term interest rates, and even virtual currencies all seem to be pointing to inflation hitting sometime in late 2021. Depending on the policies enacted in 2021 inflation could be a real concern. Inflation is caused by lowering productivity, which we are seeing in the reaction to the COVID virus. Also a cause is the money supply which has been growing rapidly in the past year due to the massive PPP program and other stimulus that the Fed is producing. After a couple of years of the money supply declining due to debt repayment, 2020 has seen the largest growth in decades. Lastly, shortages of commodities cause inflation. Right now there are no significant commodities that are in short supply, in fact most are in ample supply to meet the existing demand. We need to watch the money supply and the productivity rate, these are key indicators right now.
While we had good news on a vaccine for Covid, it will take some time before the impact will be seen. This is a new strain of vaccine that works but comes with a cost. There are two doses associated with the proposed Pfizer vaccine. Early reports indicate that the vaccine is painful to inject and the patients feel lousy after both. Getting enough doses out to the population, convincing them to take it and to come back for a second shot could be huge orders. Many are skeptical and may not even take the first dose. We also have to be realistic. Covid is not the only virus out there. Even if Covid is controlled, we have seen a societal shift in what is going to be acceptable for a large part of our population. Close quarter contact is likely going to be avoided leading to major changes in many businesses. This is a long term change to the way we interact both personally and in business. It will have a lingering impact well after the virus appears to be gone.
Have a great week.
