Inflation Revving Up
Earnings season is getting underway, and thus far Costco (COST), Federal Express (FDX), and Nike (NKE) have warned that inflation is real and is bound to hit consumers as the holidays approach. Costco, Federal Express, and Nike are seeing rising shipping costs and supply chain disruptions that persist and should continue through the upcoming holiday season. In particular, the cost to ship containers overseas has skyrocketed over the past few months. These rising inflation expectations and the realization of these inflationary pressured could cause the Federal Reserve to change policy course sooner rather than later. It’s going to be a tug-a-war between inflation, employment, Washington wrangling, and the delta variant backdrop. CPI reports will become more significant as these readings are used to identify periods of inflation. The recent CPI readings result in a much stronger influence on the Federal Reserve’s monetary policies hence the recent taper guidance.
Real World Inflationary Commentary
Supply chain disruptions, specifically in the shipping channels, have led to rising freight costs that have escalated shipping costs dramatically. The cost to ship containers overseas has soared in recent months. A standard 40-foot container from Shanghai to New York costs about $2,000 a year and a half ago pre-pandemic. Now, it runs some $16,000, per Bank of America.
Costco CFO Richard Galanti called freight costs “permanent inflationary items” and said those increases combine with things that are “somewhat permanent” to drive up pressure. They include freight and higher labor costs, rising demand for transportation and products, shortages in computer chips, oils, and chemicals, and higher commodity prices. Continue reading "Ominous Inflationary Signs Evident"