Stimulus and the Impact of Shortages

President Joe Biden may have led the congress into an inflation that has been brewing for a long time.

Treasury Secretary Janet Yellen said she didn’t think inflation posed a significant risk now that the Biden administration’s covid relief is signed and on its way to implementation. Federal Reserve Chair Jerome Powell has made it very clear that unlike some investors, he’s not stressed out about a potential rise in inflation later this year. And there’s good reason for that: he’s busy worrying about jobs.

Low interest rates and easy access to money has resulted in a buying flurry in southern California where I live. This did not start with the stimulus money sent to most families. Long before the COVID-19 pandemic new car sales and home buying was very obvious here.

My middle class neighborhood (median family income is $70,505) is now the home for high priced Lexus, Jaguar and other expensive car brands. This past October my nearby Honda dealer told me that they were not expecting any new shipments until after the new year. That means they have no motivation to sell cars at less than the sticker price. Real Estate brokers have been crying because the supply of new listings was too low for the past two or three years. It wasn’t. Most people do not keep moving from house to house. Homes have seen selling easily with bidding wars that drove the final selling price up by tens of thousands of dollars.

As of March 1, 2021 the Consumer Price Index data for the month of January found that the cost of food eaten at home rose 3.7 percent from a year ago — more than double the 1.4 percent year-over-year increase in the prices of all goods included in the C.P.I.

Even as a non-economist I can see trouble on the horizon.