Armstrong Economics Blog/Inflation Re-Posted Mar 29, 2021 by Martin Armstrong
COMMENT: Dear Mr Armstrong,
I wanted to write in to affirm your observation of regular people buying now rather than waiting (The Bull v Bear in the US Markets). I had to buy a new dryer earlier in the year. It took 6 weeks to get the one I had ordered. I wanted to buy a new computer recently. Lenovo showed delivery in 12 weeks for the one I wanted! Another company I looked at was taking pre-orders for delivery beginning the end of May. I paid a little extra and went with a small manufacturer that could deliver within 10 business days. I bought an extra freezer so we can stock up. I actually tried to buy a freezer last year and couldn’t get one at all, so I snapped one up as soon as they were available back in January.
My wife just asked me if I wanted to get a new grill for Father’s Day. I said, ‘Let’s buy that right now and put it aside. Who knows what will happen by Father’s Day.’
REPLY: I remember the 70s well. Because of OPEC, not just gasoline was rising, but suddenly everything made of plastic was rising. For those who do not know, plastics are made starting with raw materials, such as natural gas, oil, or plants, which are refined into ethane and propane. Ethane and propane are treated with high heat, in a process known as cracking. This is how they’re converted into monomers such as ethylene and propylene. The monomers ethylene and propylene are combined with a catalyst to create a polymer “fluff,” which looks like powdered laundry detergent. Then the polymer is fed into an extruder, where it is melted and fed into a pipe, and the plastic forms a long tube as it cools. So when oil rose in price, so did everything made of plastic. That was much of the inflationary boom between 1976 and 1980.
Everything was rising in price which led to the realization that it was cheap to buy today because it would only cost more tomorrow. I ordered a new refrigerator in December. It finally arrived in March. We are entering a period of shortages so prices will be moving higher as supply is constrained and demand will rise. The other side-effect of lockdowns and the destruction of offices with people working more remotely, everyone is out remodeling or expanding their homes. The construction industry is booming. Just look at the price of lumber.
Welcome to the inflation cycle our computer has been projecting would be built upon shortages