Few seem to ponder what global shortages in key commodities might do to prices.
If there is any economic truism that is accepted by virtually everyone, it’s that inflation is low and will stay low into the foreseeable future. The reasons are numerous: technology is deflationary, globalization is deflationary, central banks will keep interest rates near-zero essentially forever, and so on.
Just for laughs, let’s look at healthcare, almost 20% of America’s entire economy, as an example of low inflation forever. If being up over 200% in the 21st century is low inflation, I’d hate to see high inflation.
Here’s the official Consumer Price Index (CPI), which as many have noted, severely distorts real-world inflation by claiming big-ticket items such as college tuition and healthcare are mere slivers in household budgets.
Note the remarkably stable trend line in CPI over the past 40 years. This certainly doesn’t shout “inflation is near-zero and will stay low indefinitely.”
Here’s the PCE, Personal Consumption Expenditures, the Federal Reserve’s favored measure of core inflation. Let’s put it this way: either the PCE is real and the CPI is false, or vice versa; they can’t both be accurate measures of real-world inflation.
Here’s a look at the annual rate of inflation. The go-go years prior to the Global Financial Meltdown of 2008-09 and the years of “recovery” 2010 to 2014 look very similar: some modest volatility between 1.7% and 2.5% annually.
But something changed in 2015-2017. The wheels fell off and then inflation turned up. Maybe it was nothing, maybe not. Let’s turn to a chart of asset inflation for a different perspective.
Courtesy of Goldman Sachs, here is a chart comparing asset inflation with real-world inflation. Note how assets have soared while real-economy measures have barely edged higher–commodities actually fell in price.