The Remarkable Attribute Of Price.
We’re experiencing one of the sharpest, most dramatic jumps in prices that the nation has ever seen. When I go to the store or the gas station, it’s all I hear about: the cost of everything.
I’m even seeing stickers at the gas pump, with a photo of Joe Biden, and the caption: I did this. Ha Ha.
Inflation, it’s everywhere.
But how do we know?
You know it hasn’t always been like this. There was a time, not too long ago, when we might not realize inflation was hitting until well after the fact.
Let me tell you a story, about how it used to be.
About 20 years ago, we were living in Massachusetts. And out on the road to Worcester, was an old general store. One that had been around for a century or so.
Chock full of those nonperishables, that can last a while on the shelf. Can of Campbell soup, beans, rice. And all the staples.
Now, out front, the store had a couple of gas pumps. And I always got a kick driving by because the store was never in line with the rest of the gas stations in the area.
They were either wildly higher in price, or wildly lower. And there seemed to be no rhyme or reason to how they priced their gas.
So one day I decided to stop by and ask the owner just how he priced his gasoline.
Simple, he said, when he got a new tank full he’d add hist mark-up and that was the price until the tank ran dry. Then he’d do the same thing for the next tank full. And so on.
Now, this was a time when the price of gas kept wildly swinging, up and down in price. So depending on when he got his latest tank full, he was either the very lowest price around or the highest.
Now may chuckle at this New England Yankee, and his old-fashioned ways. But back in the day, that’s how everything was priced. And collectively we might not know there were inflation-driven higher prices coming into the economy until we got our next “tankful.”
Needless to say, all of that has changed today. Today we are seeing inflation in real-time. Something that has never happened in our history.
Going to the Gas Station today, and depending upon when you drive up to the pump, you may see an entirely different price from just a few hours ago.
And at some of the more sophisticated stations, especially those owned by the major distributors, you may see a price reflecting the spot market at one of the national commodities exchanges.
Gas pricing is sophisticated and electronically connected as we see in the Stock Exchange.
Right now you can bet that all the big gasoline buyers have already laid out their strategy for purchasing gas. The car fleets, truck companies, railroads, and municipal police and fire.
And it’s pretty obvious what’s happening. The price is going higher and higher. So what do they do? Load up now, against those higher prices later. Fill up and spare storage. Top of tanks now. Perhaps even purchase a futures delivery contract, if you are a large enough customer.
So what’s that going to do to the overall economy. It’s going to accelerate inflation right now. As people become convinced that higher prices are here for a while, they’ll increase their purchases. This is driving prices higher, right now.
It will also cause prices to decelerate even faster, when when we pass the top of this mountain. The time when prices, at last start to come down.
Right now we’re still climbing that mountain. Higher and higher. It’s all anyone can talk about. But the time will come, sometime in the future, when prices will begin to decline.
And that same incredible ability of our financial system to provide higher prices, will turn right around and speed us to lower and lower levels.
Just like that Inflation will turn to deflation.