Inflation’s Hot | Spending Boom | Floating Ships

Inflation’s Still Hot: For nearly a year, many have anticipated a potential jump in inflation this late spring and early summer of 2021. The US Bureau of Labor Statistics released its monthly inflation report last week. The Consumer Price Index (CPI) rose 0.8% month over month. Year over year, it rose 4.2%, the largest 12-month increase since 2008. As for the core CPI (i.e. CPI stripped of food and energy), it rose 0.9% month over month, its highest reading since the early 1980s. Much of this seems attributable to the surging demands on supply chains. Raw materials and labor cannot be mustered fast enough to greet the demands of the reopening economy. These rapidly onset supply chain bottlenecks provide a firm upward price pressure. Whether this overall rising inflation is brief (as the Fed expects) or prolonged remains to be seen.

Here Comes the Boom: Spend, save, and pay down debt – that’s exactly what consumers did in early 2021. A 21% surge in personal income in March, driven by a new round of tax rebates, extended unemployment benefits, and child tax credits, led to the spending splurge noted in the above story. But households were also prudent, with 85% of the income flow being saved or used to pay off debt. All of this paired with the strong US consumer showing at the end of Q1 (as we have noted in past weeks) sets the tone for the spending boom to roll into the summer.

We Need More Houses: Both in our weekly email and out in the general newsreel, you have seen stories about the sizzling-hot housing market. There is not much to be done about the housing issue in the short-term. Pent-up pressure demand just needs to depressurize. However, in the larger scheme, a peculiar insight has been surfacing: for decades the US has been building increasingly fewer homes for an increasingly larger population. In the 1970s, 17 million homes were finished, 15 million in the 80s, 13 million in the 90s, 16 million in the 2000s, and only 10 million in the 2010s. Meanwhile, each of those decades the US population increased roughly by an average 24 million. There were roughly 210 million people in the US back in the early 1970s, and more than 2 million houses were being built per year. Now, there are more than 330 million in the US, and last year we completed less than 1.3 million houses. If we adjust those new housing starts for the population change over time, the point becomes apparent: we need more homes.

Floating Ship off England Coast: A floating ship was spotted off the coast of England, images of which have been circulating rapidly online. The ship was a military vessel testing an advanced quantum-based, anti-gravity mechanism known as… just kidding. It was an optical illusion, one that apparently occurs often in the arctic circle, but was a novel thing to see southward as England. It is called a superior mirage, and it is the result of a temperature inversion, wherein cold air drifts low to the water’s surface with warm air above. This layered variance in temperature bends the light and creates illusions like this one.