After a year of spending and printing trillions of dollars, price inflation is beginning to rear its ugly head. Despite some market experts ridiculously asserting that a higher cost of living is a fictitious concept in the mind of paranoid consumers, one prominent Federal Reserve official is beginning to warn the public to get used to rising inflation.
Inflation? Just Do It
After a meeting with a business organization in Little Rock, AK, Federal Reserve Bank of St. Louis President James Bullard, speaking with reporters, stated that the U.S. economy could soon witness higher inflation. He revealed that his Federal Reserve System branch had received reports of intense supply constraints of various kinds, triggering rising prices in the broader marketplace.
"The quiescence of inflation that has characterized the last decade may not be a good guide for what's going to happen in 2021, where I would expect more volatile pricing, possibly higher inflation than we're used to," Bullard told journalists.
For the first time since March, the benchmark 10-year Treasury yield topped 1%, signaling that investors anticipate the economic recovery from the COVID-19 pandemic will lead to higher inflation. Indeed, if you comb through the data, you will see indicators that go beyond ultra-aggressive fiscal and monetary stimulus, such as a weakening U.S. dollar, rising producer prices, and soaring agricultural commodities.
However, Charles Evans, the Chicago Fed president, disagrees with Bullard and contends that it will "take years" to get inflation to average around 2%. "Show me the inflation. We need to see it," he said. There is no inflation if you do not eat, live under a roof, receive medical care, or attend a post-secondary institution.
Lettuce Romaine Calm
According to a new report from the United Nation's Food and Agriculture Organization (FAO), global food prices surged to a six-year high in December, rising 18% since May amid strong demand, state mechanisms to protect supplies, and challenging weather conditions. FAO officials warn that prices will likely climb further in 2021, from grains to palm oil. While Western countries will need to be concerned about higher grocery bills, impoverished countries could face food security problems exacerbated by conflicts and weather shocks.
Plus, other factors are playing an integral role in ballooning food prices. Russia has slapped an export tax on wheat and soybeans. Argentine farmers are set to disrupt corn production with national protests over export licenses. Brazil is facing hot and dry conditions that are impacting the early harvests. U.S. supplies are tightening due to soaring foreign demand. China is restocking domestic inventories by seemingly acquiring most of the world's output.
Could our COVID-19 world spawn a food calamity? Consider this: Soy prices have soared to their highest levels in seven years, and industry observers warn that the world will need to begin rationing demand. Anytime the term "ration" is uttered, it is time to panic.
Overall, it is bad news for everyone, says Abdolreza Abbassian, a senior economist at the FAO, adding that "food inflation is a reality." Liberty Nation has sounded the alarm about a food crisis since the summer, citing disruptions to supply chains, shocks to production, loss of incomes, and food insecurity.
I Won't Take Manhattan
It turns out that companies are not singing the classic Rodgers & Hart tune, I'll Take Manhattan, as businesses – large and small – flee the city. Bloomberg is reporting that Manhattan's office market is facing record-breaking vacancy rates, with new rental deals failing to invigorate the industry. The business news network cited a report from commercial real estate firm Savills, noting that New York City's metropolitan borough had an office vacancy rate of 15.1% by the end of 2020. In the fourth quarter alone, approximately 68 million square feet of office space was unused. In the final three months of last year, new leases cratered 64% year-over-year, and average asking rents for Grade A office space tumbled 8.6% to 90.42 per square foot.
Is this surprising? Not at all. Liberty Nation reported in December:
"The coronavirus pandemic changed things, at least temporarily, for some of North America's biggest cities. With companies adopting work-from-home policies, people concerned about respiratory illnesses in the middle of a large city, and states and municipalities introducing tax-friendly environments, why bother staying put? Now that telecommuting has become the norm, you could reside in a mountain town and nobody would care – as long as you are productive and available."
In the meantime, the real estate industry will be monitoring high-frequency data in foot traffic. In December, activity at about 20 major Manhattan office fell 80%. It turned out that professionals are also not singing the classic Cab Calloway song, Happy Feet.
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Read more from Andrew Moran.
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