Inflation as Transitory as "Toilet Paper Shortages?" Not in the Real World

Written by Jason Simpkins
Posted May 7, 2021

Earlier this week Boston Federal Reserve President Eric Rosengren showed up on a webinar for Boston College and had this to say:

My view is that this acceleration in the rate of price increases is likely to prove temporary. Toilet paper and Clorox were in short supply at the outset of the pandemic, but manufacturers eventually increased supply, and those items are no longer scarce. Many of the factors raising prices this spring are also likely to be similarly short-lived.

What a disingenuous bunch of BS.

This comparison makes no sense. And frankly, I’m a little disturbed that a Fed economist would even attempt this kind of a yoga pose.

First, with respect to toilet paper and bleach, we're talking about two commodities that experienced a supply shortage that resulted from a supply-demand imbalance.

But with inflation we’re facing the exact inverse of that — an oversupply of dollars that is causing their value to plummet.

Now, in the case of toilet paper and bleach, all we had to do was make more and wait for demand to normalize.

So it stands to reason, by Rosengren’s own logic, that the solution to inflation is to dial back the supply.

But is that what the Fed is doing?

No. It’s doing the opposite. It’s expanding the money supply, and has pledged to continue expanding the money supply while ignoring the very obvious consequences.

And here’s another interesting fact about toilet paper: Its price is going up.

On March 31, Kimberly Clark Corp. (NYSE: KMB) announced it would have to hike prices on “a majority of its North America consumer products business,” including Cottonelle toilet paper, Huggies diapers, and Kotex tampons and pads.

“The percentage increases are in the mid-to-high single digits,” the company said in a news release. “Nearly all of the increases will be effective in late June.”

And guess what?

Clorox is in the same boat.

Clorox CEO Linda Rendle was on CNBC's “Mad Money” last Friday and she had this to say:

We’re looking at price increases, although we’re being very measured and taking that in a category-by-category approach and, of course, we’ll focus on innovation and margin-accretive innovation.

So while the Fed’s Rosengren is out here talking about how great it is that all these products are no longer in short supply, bragging about how we have so much to go around when it was once so scarce, he’s completely oblivious to the fact that the prices of these products are rising.

Rising because of the inflation he so casually dismisses as “temporary.”

See, here’s the problem with Rosengren and these other ivory tower elites...

They don’t buy their own toilet paper, paper towels, and diapers. They don’t buy their wives’ tampons. They don’t even drive their own cars.

If they did, they’d have noticed that the price of gasoline has risen 1.7% over the past week, 2.4% over the past month, and 64% over the past year.

People like Rosengren, who makes something in the neighborhood of $383,500 a year, don’t feel that pain.

Fed President Salaries

These “experts” don’t live in the real world.

The world where home prices are up more than 11% in the last year, where median home prices are at a record high, and where private equity firms are outbidding actual families for single-family houses.

Home Prices 5/21

 

Which raises the question: If inflation is only transitory, why are investment firms so keen on fixed assets like houses?

Why are gold prices suddenly back up above $1,800 per ounce, having surged 5% in the past month?

Gold Price One Month 5/6/21Why is everyone piling into volatile and unproven cryptocurrencies?

It’s because investors are acknowledging what Fed economists won’t: That inflation is real.

And more than that they expect it to get worse.

Much worse.

I’ve been saying it for the past year, and I haven’t been wrong yet.

Inflation is real.

The Fed can deny, deny, deny, but at the end of the day it’s going to lose this battle.

And we’re all going to pay the price when the music stops and the bubbles pop.

Fight on,

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Jason Simpkins

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Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of Wall Street's Proving Ground, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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