Pro Perspectives 3/25/21

March 25, 2021

Adding to the risk of a hot run in inflation, we now have a massive container blocking the Suez Canal.

This comes just as the Fed has spent two weeks telling us inflation will be under control. 

This Suez Canal disruption adds a potential third element to what's already a double-whammy recipe for inflation.  As billionaire Ray Dalio said in a recent interview, we have two types of inflation:  1) supply/demand driven, and 2) monetary inflation.  And we're getting both

We have monetary inflation, to the tune of 28% growth in money supply from the same period a year ago.

And on the supply/demand side, not only are we getting a supply crunch from the global economic disruption of the past year, the scarcity of supply is being met with pent-up demand, as global vaccinations begin to people back to some semblance of a normal life.  

Now, adding to the supply issues, we have one of the most important seaborne trade arteries blocked.  The Suez Canal handles 9% of global oil products, and 12% of global trade.

The speculation on when it may be resolved spans from days to weeks. 

The longer the delay, the more pressure on prices.  Remember, contrary to what the Fed is telling us, the price pressures are clear in the business world.  In the February ISM Manufacturing report, the "prices paid" component came in at one of the hottest readings in 20 years.  It was the ninth consecutive month of price growth, and it came from hotter demand AND "scarcity of supply chain goods."