Inflation and Stagnation data
Description
Inflation is not always directly caused by wages or interest rates. The 285 percent increase in natural gas prices and a 77 percent increase in wheat prices in the past 5 years (while wages remained almost flat) is a clear indication of a price inflation problem that is not going to be resolved with higher interest rates or lowering wages. This is because the cost of energy production is rising. IEEFA: What the Texas energy crisis means for Bangladesh's energy security - Institute for Energy Economics & Financial Analysis We have reached the peak of the boom period, and it is unlikely that prices are going to remain stable. We are probably not far from the point where the inflation and energy shortages are going to hurt the economy in a significant way. If this is the case, and I think it is, then we are entering a period of instability in which capitalism cannot function without even more government intervention. The Compound Effects Webinar: How COVID-19 will shape global supply chains Look at the failure in the UK of the private sector to ensure the supply of food, due to the unprofitabity of CO2 sales. Look at the failure of BP in the UK to supply gasoline to the stations due to "driver shortages". Gas crisis: Pig farmers fear they may have to cull animals - BBC News The compounding nature of this is becoming apparent. High energy prices in natural gas has caused two major fertilizer plants to shut down, meaning we aren't producing enough agricultural Co2. These fertilizer plants usually produce CO2 as a byproduct and sell it to the market; this is no longer economical due to the rising gas prices - so the CO2 crisis is directly linked to the gas shortages. Co2 is used for a panoply of essential foodservice practices - dry ice for transport, stunning animals before slaughter, carbonated drinks, sealing plastic packaging and much more. The gas shortages have also caused a large increase in electricity prices as a relatively large fraction of power is generated from the combustion of natural gas. These shortages are already causing food prices and electricity prices to soar. What does this mean? We are entering a period of instability in the markets as the price of energy begins to go up, and as prices go up, we get inflation while the economy is in a deflationary environment. The only way out is for the government to try to control the price of energy & increase the money supply, both of which contribute to the eventual outcome of stagflation