In the UK, inflation was up enough in May to put the annual run-rate at 3.3% The Bank of England promptly took a look at those numbers and said inflation in the second half could be 4%. The economy in the UK could start to look like that of Brazil fifteen years ago.
According to MarketWatch, "Prices for goods leaving the factory gate hit an annualized 8.9% in May, while the costs of inputs that manufacturers pay soared by 27.9%, the fastest rise since the mid-1970s."
No matter how much the Fed wants to insist that the current upward price pressure in the US economy is moderate, it simply isn’t true. Key commodities cannot post price gains of 40% without the overall cost of doing business as a consumer or enterprise moving up much more than the 3% or so that the Fed and US Treasury mention from time-to-time.
Coming out of the 1960s, when inflation had averaged about 2.5%, it was hard to imagine that it could move above 10% in the very late 1970s. But, the US economy may be setting up for a similar surge now.
The Fed can control interest rates, but controlling the price of crude and most agricultural commodities is beyond its abilities. The markets for those goods is now entirely global and it pushed by force as far afield as China, the Middle East and Russia. Even the weather has conspired against the Fed by dropping record rain on the Midwest, destroying some of the corn crop there.
The situation in the UK is not much different than that in the US. When foods sourced globally are expensive, they are expensive everywhere. That seems obvious, but it has not been part of the inflation projections being issued by the government here.
Hell is coming and inflation is coming with it. The Vegas odds are for a 5% annualized rate in the US before Christmas.
Douglas A. McIntyre
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