I stated in my book What’s Next for the Economy, that I expect an oil shock to be an inflation trigger in the not too distant future. With the advent of “fracking” – the use of high-pressure water mixed with chemicals to force oil out of poorly performing wells – that happenstance has been delayed. The reality is that an oil shock might not be the trigger that sets off inflation in our future. If that is the case, then what else could possibly be an event trigger for the next wave of inflation?
The Federal Reserve, or more accurately, actions by the Fed, could become that catalyst. A recent article by Matt Egan at CNN commented on the potential effects of the appointment of Stephen Moore as a Fed governor by President Donald Trump. Mr. Moore has stated that he thinks the Fed should immediately cut interest rates, and has gone as far as saying that Chairman Powell should resign. Mr. Egan states rate reductions would be interpreted by investors that a recession is coming. He ends his article with a warning, that allowing politics to drive Fed policy would trigger “runaway inflation.”
Another trait of inflation I discuss in What’s Next for the Economy, is the stealth effect, in that inflation kind of sneaks up on you before you even realize its there. I am noting that in this blog article, because of other recent posts in the media. One article stated that Oil just posted its largest quarterly price increase since 2009. A second article stated that the average price for a new car is now over $33,000, $1000 more than last year. A third article stated that HAAS avocados prices increased by 34% this week, the largest price increase in ten years. Is this the start of a trend?