Inflation strikes again

Time period: 10 – 16 July 2021

Top news story. The main news, as usual in recent months, has again been inflation. We quote a fragment of Pavel Ryabov’s latest review (Spydell):

“What happens in this collapsing black hole? The six-month price momentum reached 3.6% by June 2021 (corresponding to over 7% annual inflation), which is no longer possible to justify a low base deflationary period in spring 2020. The current half-year momentum is the highest since 1981! In three months, inflation rose to 2.35% (almost 10% annual) – close to the most aggressive price expansion of the 1970s-1980s, when the three-month momentum reached 3.5%”.

“Over the past three months, prices have been rallying not only for fuel and transportation, the price momentum in food products reaches 6% per annum, 9% in clothing and footwear; in computers, digital goods and components – more than 20% per annum, utilities – almost 8%, the same amount of furniture, household and garden goods. The cost of rent increases by almost 5% over the last three months in annual terms; by 3.5% in education; and the sport and entertainment industry by about 6% annually. The only thing that has a deflationary focus are medical services overstretched by public money and oversupply.”

Some additions in the next section, the main findings will be in the last section of the Review.


Industrial production in Japan -6.5% per month (trough since May 2020) – the amount over the last six months is even below zero:

Japan Industrial Production MoM

In the Euro Area -1.0% and the same zero change over the last six months:

Euro Area Industrial Production MoM

In Canada’s manufacturing industry, sales have fallen for two consecutive months:

Canada Manufacturing Sales MoM

United States Philadelphia Fed Manufacturing Index is the lowest in 7 months:

United States Philadelphia Fed Manufacturing Index

This happens in many places – the positive values of indices (not surprisingly when inflation is underestimated) which, however, are lower than the forecasts. University of Michigan Consumer Sentiment Index, July, preliminary: 80.8; forecast: 86.5; June: 85.5 in the US. ISM non-manufacturing index in June: 60.1 points, forecast: 63.5 points; May: 64.0 in the US. Composite PMI, final for June: 63.7; preliminary: 63.9 in the US. Service PMI index, final June: 64.6; forecast: 64.8; preliminary: 64.8. The exception is Empire State manufacturing PMI, July: + 43.0 with forecasted +18.0; June: +17.4. But, again, with such price increases, it is difficult to say what is causing the sales growth, the US does not count in units.

Japan’s service sector activity is the weakest in 10 months:

Japan Tertiary Industry Index

Australia’s business confidence is the worst in six months:

Australia Business Confidence

Wholesale prices in Germany are 10.7% per year, which has been the highest since 1981:

Germany Wholesale Prices

CPI (Consumer Price Index) of Britain + 2.5% per year, which was the peak since 2018:

United Kingdom Inflation Rate

The same is true for core inflation (i.e., excluding high-volatility components in the form of food and fuel):

United Kingdom Core Inflation Rate

The next step is to begin refining the figures for the United States.

US CPI +0.9% per month and +5.4% per year – well above expectations and record since 2008:

United States Inflation Rate MoM
United States Inflation Rate

Without food and fuel + 4.5% per year – peak since 1991:

PPI (Producer Price Index) of the USA + 1.0% per month and + 7.3% per year, the highest since 2008:

Without food and fuel +5.6% is also at most since 2008:

United States Producer Prices Final Demand Less Foods and Energy

And if we look at all the goods (not just final demand), we get 19.5% per year, which is the peak since 1974:

By the way, it is the difference between these figures and the official figures that gives positive values to the factors of business activity: officially 5-6%, and, in reality, under 20%.

Accordingly, the difference goes into an “increase” in business activity.

Inflationary expectations (New York Fed survey) in the US are at a record high (+ 4.8%):

British earnings and bonuses 7.3% a year, that’s 20 years maximum:

Dwelling Approvals in Australia -7.1% per month after -5.7%:

Retail in Turkey -6.1% per month after -5.8%, which shows essentially zero dynamics over the last year:

Turkey Retail Sales MoM

By the way, in the US, retail sales rose in June by 0.6% per month with a projected decrease of   -0.8% per month (in May it was -1.3% per month).

The Central Bank of Canada has cut bond purchases by another $ 1 billion per week, which is already half the original volume.

The New Zealand Central Bank stopped buying assets altogether and even hinted that it might start raising interest rate in August.

The Central Bank of Turkey left everything unchanged, as did the Central Bank of South Korea and the Bank of Japan.

Summary. Let’s start with the charts of US beef and coal prices. Of course, their prices will fall quite soon (as was the case with lumber, see the previous Review). But such price hikes do considerable harm to consumers and the entire production chain as transaction costs and risks increase. Thus, the level of monopolization increases and prices rise accordingly. Nothing good for the economy in this situation.

The stock market also holds records: the graph of the ratio of capitalization to sales in the technological sector of the US stock market and in the S&P-500 index as a whole. The first repeated the record peak of 2000 (7.5), the second went over it strongly.

Next, we turn again to the review of Pavel Ryabov.

“The problem is that the price increase has not even started yet. There are fundamental factors that reveal the essence of the current irreversible destructive processes in the US.
Unemployment statistics are irrelevant due to manipulation with the category «not included in the labor force», in which there was a sudden increase of 6 million in 2020, and they were not counted as unemployed. A much more appropriate indicator is the deviation of the number of persons actually employed in the economy from the working-age population according to the norm in force in 2000-2007. At that time, 62.5% of those able-bodied were employed, now 58%, based on the number of people, this is a differential of 12.5 million people, or more than 8 million able-bodied people who left the labor market after 2020 compared to 2019. They have not yet recovered and will not recover for long.”

“Why don’t they come back?

  1. Partial preservation of the constraints associated with the pandemic, which primarily affect entertainment, catering, tourism and mass events (short-term);
  2. The structure of the economy has changed – most professions have become unclaimed in the digital world permanent online (long term);
  3. But the most important thing is the demotivating fork. On the one hand, the category of distraught speculators and investors – those same holders of the 60 trillion stock market, ardent supporters of Apple, Tesla, Microsoft and other bubbling assets. Thus, access to easy and fast money inevitably reduces the desire for work, especially work not associated with creative activity. On the other hand, the category of poor people living on benefits. The economy is partly “disconnected” because the size of targeted stimulus programs equals or mainly covers the labor income, which demotivates to leave the status of unemployed”.

And this last schedule is the most important one. The entire book “Reminiscences about the Future”, the entire theory on the basis of which the Mikhail Khazin Foundation for Economic Research is doing its work, is built around the explanation that the aggregate demand in the world is stimulated by emissions. The last chart shows that emissions have begun to play a dominant role.
And this means that this system will not last long.
Another excerpt from Pavel Ryabov’s review:
“And the last is the excess liquidity in the system. Real money grew by 25% at the end of 2020, and growth has now slowed to 13%.”

“In the 1970s and 1980s, a sharp increase in the money supply led to an increase in inflation with a lag of 1.5 years with a factor of 1.4, i.e. for every 5% increase in real money supply, prices subsequently rose by 7%. This dependence was further reduced by mechanisms to absorb excess liquidity in financial markets and to export inflation to the outside world through the financial globalization of the dollar. But the dependence remained at 0.6-0.7 from 1990 to 2006 and around 0.4 from 2008. Thus, by 2022, US inflation will actually exceed double-digit levels.
But it will be stronger because of structural and deep degradation in the US.
Thus, inflation factors in the United States:

  • Implementation of deferred demand after full or partial removing of COVID-19 restrictions (short-term factor);
  • Carry-over of inflation costs after bubbling (also short-term);
  • Excess liquidity is hung on the hands of the population along the path of growth in the velocity of money circulation. The difference between the current crisis and the previous one is that the excess liquidity used to circulate in the closed loop of the financial system without going into consumption. Excess liquidity is now concentrated in the hands of the people (in the medium term);
  • Labor market and productivity distortion, economic degradation (long term);
  • Structural shortfall in supply of goods and services due to recruitment difficulties (long-term).”

This market practice reasoning confirms our findings, as do a number of other points (which I have omitted as they have been discussed at length in our previous Reviews). The fact that by mid-summer the situation was only getting worse was a matter of serious concern.
We wish our readers pleasant weekend weather and a nice vacation!


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