The inflation crisis of 2021 continues to build

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by Shaun Richards

The economic story of 2021 has become one of rising inflation. Some of this is quite simple in the sense that the claimed triumph of getting demand back towards pre pandemic levels happened too quickly for supply to match it. Then things get more complex as it is good we have avoided mass unemployment but there is an undercut via the impact on the real value of wages. Also we have seen the energy area have quite an inflationary burst as the increased demand collided with an official push for supply sources which are unreliable. As it happens in the UK they are being unreliable this morning with wind power providing a mere 3 GW to the National Grid.

You do not need to take my word for it as this week has seen a couple of U-Turns on the subject. Let me start with the UK.

LONDON, Nov 9 (Reuters) – Britain has backed a $546 million Rolls-Royce funding round to develop the country’s first small modular nuclear reactor, in a drive to reach net zero carbon emissions and promote new technology with export potential. ( Reuters )

Then last night the trend moved to France.

PARIS, Nov 9 (Reuters) – France will build new nuclear reactors to help the country lessen its dependence on foreign countries for its energy supplies, meet global warming targets and keep prices under control, President Emmanuel Macron said on Tuesday.

As ever there are nuances but the main thrust here is that government’s are coming to terms with their failures in the energy policy arena. There are loads of these but for our purposes the main one is that as well as deliberately driving prices higher they left themselves depending on one major source.As so many followed the same policies the price of that source ( gas) has been driven higher and much higher. Of course nuclear is not cheap but it is usually reliable although the catch is that none of this will be around for at least a decade.

China

This morning brought a reminder that the heat is on as producer prices in China rose by 13.5% on last year in October but more importantly rose by 2.5% on the month. The particular areas are shown below.

Among the ex-factory prices of industrial producers, the price of means of production rose by 3.3% , which affected the overall increase of the ex-factory prices of industrial producers by about 2.51 percentage points. Among them, the price of mining and quarrying industry increased by 12.1% , the price of raw material industry increased by 4.4% , and the price of processing industry increased by 1.8%  ( China Statistics)

I doubt whether those area cause much of a surprise and there is an issue with the numbers for mining and quarrying. Such has been the push for coal in China due to the energy crisis discussed earlier that the price indices for it were suspended for a while.

The state planner also flagged Futures Daily on Wednesday night for the media’s “false reporting” on efforts to stabilise coal prices and supplies, and said it would refer it to the relevant department for punishment for inaccurate reporting. ( Reuters 4th of November)

Ah “false reporting” I think we know what that means. There is an issue for the rest of the world as China’s producers are going to have to raise prices.

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There is a quirk in the story as we move onto this.

In October 2021 , the national consumer prices rose by 1.5% year-on-year

Not much when you look at the trend for producer prices so far this year. But there is a catch.

food prices fell by 2.4% 

One particular type of food in fact.

In food, the price of livestock and meat dropped by 26.7% , which affected the CPI by about 1.13 percentage points, of which the price of pork fell by 44.0% , which affected the CPI by about 0.98 percentage points;

So once that runs out we can expect 2.5% CPI inflation and if we now switch to the monthly move for it to be rising.

In October , the national consumer prices rose by 0.7% month-on-month . Among them, urban prices rose by 0.7% , rural areas rose by 0.7% ; food prices rose by 1.7% , non-food prices rose by 0.4% ; consumer goods prices rose by 1.1% , and service prices rose by 0.1% .

Food prices are by their nature somewhat volatile although we know that the world trend for 2021 has been along the lines of the only way is up. In terms of China October was bad for fans of fresh fruit which was up by 29% but much happier for seafood fans as it fell by 23%. Also whilst the impact of the pork swine fever episode is fading it is not gone entirely as pork prices fell by 2%.

The US

Later today we will get the new CPI figures but we do already have the producer ones.

The Producer Price Index for final demand increased 0.6 percent in October, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices moved up 0.5 percent in September and 0.7 percent in August. On an unadjusted basis, the final demand
index rose 8.6 percent for the 12 months ended in October.

For these numbers the last three months have been remarkably consistent at around 0.6% per month. Or as The Whispers put it.

And the beat goes on
Just like my love everlasting
And the beat goes on
Still moving strong on and on

Let us switch to some better news for canivores at least.

In contrast, prices for beef and
veal decreased 10.3 percent.

Although I have to confess I am struggling to figure out how they managed this.

The indexes for light motor trucks and for residential electric power also fell.

In case you were wondering I have looked up light trucks and it was the month for quality changes.

The $196.27 estimated retail value of quality change breaks down as follows:

  • $58.31 for improvements to infotainment systems.
  • $137.96 for improvements to safety equipment such as sensors and active safety features, powertrains, and changes in levels of standard or optional equipment.

Germany

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The Euro area inflation measure was confirmed at 4.6% earlier and for those arguing it is well “Transitory” there was an additional problem with the monthly growth rate being 0.5%.

Comment

Whilst you might think that we should learn from this Bloomberg shows that in at least one area we have not.

Sustainable aviation fuel is typically three to four times more expensive than kerosene — and not entirely clean

Let us drive up prices there too although of course ( Michael Bloomberg and his private jet excepted) they do not want us to fly. Speaking of flying they omit to tell us whether this applies to the family private jet.

“I’ve become a flagrant light switch chaser whenever I walk through a room,” says John Kerry. He tells @flacqua

how his role as U.S. Special Presidential Envoy for Climate has changed his lifestyle.

We can now move to the word Transitory which deserves a special mention in my financial lexicon for these times.

“When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’ ( Lewis Carroll )

If only we had independent bodies which were supposed to protect us against rising inflation.

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