Recently, I have been served a couple of very stark reminders of the current state of the economy in terms of supply-chain issues and inflation.
First, my failed attempt to secure a fairly common type of roofing shingle in order to complete a new roof on our home (and yes, I am doing it myself -- that's what value investors do; although only when Mrs. Value Investor is out of town). These shingles are nowhere to be found, and I'm not sure when they will be available.
Second is the $7 cup of crab bisque (not cheap to begin with, but the best I've ever had) at a local restaurant, which disappeared from the menu a couple of months back. Last week, it was back -- -for $15.
I was a teenager during what I recalled as the last big run of inflation in the early 1980s, and was curious about the actual numbers. Without looking, I figured there were big CPI increases during the 1979-1981 range, but was shocked when I saw the actual numbers, and how long the run actually lasted -- at least as compared to what we've been accustomed to the past couple of decades:
1973: 6.2%
1974: 11.1%
1975: 9.1%
1976: 5.7%
1977: 6.5%
1978: 7.6%
1979: 11.3%
1980: 13.5%
1981: 10.3%
1982: 6.1%
Between 1973 and 1982, prices rose 130.5%, by my math. In 1983, the CPI settled down to a 3.2% clip, and the highest we've seen prior to the current debacle was 5.4% in 1990.
In recent years the Federal Reserve became "focused" on keeping inflation at a 2% clip or below, but we'll soon see how the current crew reacts to Thursday's announced 7.5% year-over-year rise.
I see four rate hikes in 2022, and a Fed that is going to have to "dance" well in order to "manage" inflation, while not shutting the economy down. Oh, and by the way, in 1973 the national debt was $458 billion, the equivalent of $2.9 trillion in today's dollars. We just passed the $30 trillion mark. Absolutely frightening.
Meanwhile, The Sprott Physical Silver Trust (PSLV), my "single best idea" for 2022, and one potential tool to help mitigate the effects of inflation, has not moved much (+0.5%). On a relative basis, it is better than the S&P 500 (-5%) and Russell 2000 (-9%), but a bit disappointing in this environment so far.
This, for sure, is ending the week on a downer. However, it is good to look back, and see where we have been in terms of inflation. It does not necessarily mean there will be a repeat, but it is also not comforting within the scheme of other challenges we face.
