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Inflation Spike with Brian Beaulieu

June 11, 2021

The latest data shows inflation rising - how has that been reflected in commodity price increases? Catch our newest TrendsTalk episode with ITR CEO and Chief Economist Brian Beaulieu to learn more.



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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hello, this is Brian Beaulieu, CEO and Chief Economist of ITR Economics. Thank you for joining us for another edition of TrendsTalk. Today, I want to talk about a current hot topic: inflation. It is spiking in the latest data at the CPI level, both core and overall CPI. But there's a disconnect between what that's showing and what a lot of companies are feeling in terms of commodity price increases, and that has them scratching their head a little bit. But you have to remember that there's a difference between B2B pricing and how much of that increase in material costs and labor costs, for that matter, is actually getting pushed through to the consumer. And the CPI isn't going to show all the inflation that's out there. For instance, it doesn't show housing prices and what they're going through, at least not very well.

So, it's an imperfect gauge. And from our view, current rising trend of the CPI is likely to be transitory. We're going to see commodity prices leveling off, so that's going to help with the transient nature of it. Certainly, the Federal Reserve thinks it's transitory, because they're not raising interest rates. The bond market, our read on the bond market says that it's just a spike and it's going to be coming back down. We use rate of change all the time, and our rate of change analysis, you look at gold, and that rate of change is coming down. Look at money supply, that rate of change is coming down. All of which is a harbinger of diminishing or slow or mitigated inflation in these late this year, and certainly in 2022, or likely going into 2023.

So, the rest of the story on inflation, however, is that that next low in the CPI isn't likely to be as low as the last three business cycles, and that's important. The last three business cycles, we saw our rate of change low vary between essentially 0 and 1, 1 1/2%. This forthcoming low, after this spike, looks like a CPI bottoming out around 2.0%, and then starting to rise from there. When you see, or if that happens, and you see it happen that way, that's going to be telling you that the next round of inflation is going to be more systemic, it's going to be broader, and it's going to be the beginning of the inflationary buyers that have been lit by labor shortage, by the systemic deluge of fiat currency, compliments of the Federal Reserve by their weakening US dollar.

And that last point is important, by the way. Oil prices are going up, for instance, and they're going to continue to generally rise. We plateau at about 75, $77 a barrel, but clearly, that's inflation until we hit that plateau. And then from there, the next rising trend in oil is going to be not coming from $40 or $50, it's going to be coming from something more akin to 60, $65. See, everything's starting at a higher base next time. So, prices aren't correcting downward. We're not going to see the CPI correcting downward. And that's compliments of deficit spending.

End of the day, when people say deficit spending doesn't matter, it doesn't matter today. I get that. But it's going to matter down the road. We're laying the foundation for a higher rate of inflation, for even higher prices down the road, because they are fundamentally eroding the value of the dollar. The linkage is real. The correlations are real. It's going to be with us for a long time. So, we need to start thinking about how we are going to be protecting ourselves from inflation.

Fortunately, been in this game a long time, been able to impart a lot of knowledge, wisdom to the team. There are ways to cope with this inflation. But it's not immediate. It's not in 2022. So, we have time to talk about it, and we will, in a future TrendsTalk. Thank you very much for joining me today, this is Brian Beaulieu with ITR Economics. Have a good one.


Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.