Where We're Headed
Well, my 2-week war timer was missed. There are rumblings of big things happening tonight, 4/7 but unsure what this will bring. Regardless, the US still has a myriad of issues in the coming months and years.
Energy Prices
$5/gal gasoline is the new norm. The price will not come down, and Iran will be blamed for it. Global demand for energy will steal domestic supply and maintain elevated prices. The US needs this to reduce its trade deficits and the expense of living standards for us, the proletariat. This is already being seen with reduced ethanol limits in gasoline, reducing quality to maintain prices.
Food Prices
Urea prices have increased by 100% over the past four months and are conservatively estimated to reduce corn acreage by 3%. This will have a significant impact on finished goods and food prices throughout the year. I describe myself as corn fed due to the actual amount of corn I eat; however, most people in the US are as well through corn being utilized in meat production, syrups, oils, and more.
Producer Price Index (PPI)
Historically, PPI is a leading indicator for the Consumer Price Index (CPI) by approximately 6 months. In January and February alone, before the real commencement of the Iran conflict, PPI increased 0.5% and 0.7% m/m, respectively. With the inclusion of $5 gas and higher food prices, expect CPI numbers to rise.
Money Velocity
The number of times a dollar changes hands is money velocity. Currently, Money Velocity has risen in the past 18 quarters (1.41) and is the highest level since Covid. As velocity increases, there is more demand for goods, so expect additional upward pressure on prices.
Debt
The US surpassed $39T in debt obligations. As the annual deficit borders on $2T/year, a ponzi scheme can never taper. Knowing the requirements for continued expansion and maintaining a “healthy” economy, the Federal Reserve and US Treasury injected over $250B into the economy in Q1 to maintain bank liquidity.
As the Treasury and Fed continue to be ground between the inflation rock and the debt spiral hard place, expect something to give in the near future.