The Word for the day is "Transitory"
Everybody — meaning anybody with a functioning brain — acknowledges that the scourge of inflation is loose in the land.
Capital Thinking · Issue #946 · View online
Everybody — meaning anybody with a functioning brain — acknowledges that the scourge of inflation is loose in the land.
The Fed — hats off to these guys for having kept inflation at below 2% for the last 10 years, well played guys — says it is “transitory” meaning it will recede, but they cannot define the driving force that will propel that movement.
Why will it recede? What will drive it back from the gates of the city? What force?
Nobody disavows inflation; they just say it is transitory, will be fine, or ignore it.
Inflation, The Skunk At The Garden Party
Jeff Minch | Musings of The Big Red Car:
Shipping Costs as an exemplar of inflation
So, I did some research and came up with this particular example to underpin my opinion:
What you are looking at is a graph that conveys some interesting data.
1. For the last 5 years, the cost to transport a 40′ shipping container (the industry gold standard) almost anywhere in the world has been less than $2,000. Consistently.
2. Since mid-2020, slightly more than a year ago, that cost has increased by 500% to approximately $10,000.
Simple math says that if you were transporting 100 widgets in said 40′ container and you were paying $2,000 per container a year ago your costs looked like this:100 widgets at $2,000 per 40′ container = $20/widget in shipping cost per 100 widgets at $10,000 per 40′ container = $100/widget in shipping cost.
Let’s assume these are $1,000 widgets. This means your shipping cost increased by $80/widget which is an increase of 8%.
Doesn’t seem like the end of the world, can’t even see it from there, but it is an inflated cost.
Why did this happen, Big Red Car?
The pundits will give you a list that looks like this:
1. Shipping companies responding to anticipated lower shipping demand took ships out of inventory which drove down capacity which drove up price. [The BRC has a very hard time swallowing this, plus by now this would have been reversed.]
2. It’s the pandemic — see #1 above.
3. That container ship (the “Ever Given”) that got stuck in the Suez Canal — March 2021 — for 6 days. Really? In six days?
4. Consumers stuck at home in their Pandemic PJs went on a buying spree that drove up the volume of shipping that drove up the price of shipping.It is slightly more complicated.
5. Ships arriving to the United States — as an example Long Beach, California — cannot get wharf and dock space to unload. Here is a graphic of a hundred ships waiting at anchor off Long Beach to unload.
