In our March 2021 newsletter, Inflation Risk & What You Need to Know, we sounded warning bells about the possible risk of inflation. It turns out, we were right. However, I do not like being right when it comes to these types of predictions. (If you ask my wife I am never right.) This effects every American’s wallet. Things are worse than we predicted.
I will share data directly from our March ‘21 article and compare what we said one year ago with what happened. We predicted inflation to hit 2%. Where are we today? I hope you are sitting: 7.5%. That constitutes a 40 year high! You have to go back to the ‘80s to get an idea of what the financial landscape looked like when inflation was that high. The annual average interest rate in 1981 was 16.75%. That was an all-time high. It made it an expensive decade to borrow money.
In the March ‘21 article, I referenced Venezuela, as they are the poster child for what runaway inflation can do to a nation. I joked about a $50 loaf of bread. We are not there yet, but where we are certainly puts us on a springboard for bad economic times to come. The markets seem to agree with this statement – as any slight turbulence, regardless of origin, sends them all tumbling.
Natural Gas has seen significant swings during the last year. NYMEX Feb ‘21 Nat Gas Futures contract closed at $2.76 MMBtu. Fast forward to Feb ’22 settling at $6.26 MMBtu. That is a 127% increase. This story is rearing its ugly head across every industry and demographic. I am sure you do not need to read this article to know that inflation is upon us. The Biden administration is under enormous pressure to get a handle on this. They must stop the bleeding. Unfortunately, inflation is like an avalanche – by the time you see it, it is too late. Like an avalanche, the inflated cost of goods is burying millions of Americans who are on a budget.
If you read last month’s article, 2022 Energy Outlook (I trust you did – otherwise I am writing this stuff for no apparent reason), you have our take on the upcoming year. If our elected officials do their jobs, 7.5% inflation could be the top. I am not being a pessimist here, but I doubt they will. We are always late to the party with a fix. When we finally act, it is an overreaction. This leads me to believe that we are not at the top just yet and, we may be in this economic environment for some time to come.
Okay, let us try to bring this home on a positive note. The entire country and world are re-opening to full capacity mode. The pandemic is subsiding, and unemployment is 4.4%. This combination bodes well to combat inflation while setting the stage for a broad post-pandemic economic and supply chain recovery.
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