The Three Horsemen of Inflation

Trucking Inflation Is Just Getting Started

U.S. cargo shipments contracted throughout 2015 and 2016.

This was evident in both rail and trucking. But trucking is special: 70% of goods in the U.S. get shipped by truck. So naturally inflation in the trucking industry has a major impact throughout the economy (a ripple effect, if you will.) .

Truck contract rates began to rise on a year-over-year basis in 2Q17, moving steadily higher to 5%. More importantly, spot rates surged to 20+%.  That's the tell-tale sign of inflation.

Demand explains a lot of the pressure. Strong farm harvests pushed up loads. Also, the hurricanes sparked a scramble: to ensure product inventories, to haul away the damage, and to haul in building supplies. That's on top of already growing demand.

Supply has also been a problem though.

Starting Dec. 18th, Federal regulations mandated electronic logging of hours spent driving.  Many truckers decided to quit instead of working under conditions of extra cost and less income.

The combination of higher demand and fewer truckers is adding enormous cost pressure in the supply chain.

Cell Phone Deflation Ends, Inflation Returns

Last year I pointed out that CPI was already reporting 2% inflation. We just needed to look past the single line-item of wireless services. Here's the math that goes into calculating CPI.

Communications Services are 3% of total CPI and 4% of CPI ex food & energy. Wireless services are about half of the Communication Services.

Starting in 2016 and accelerating into 2017, the CPI of wireless services deflated at an incredible and accelerating rate: -14% y/y.  In essence, for almost 2 years, wireless services deflation has been shaving 20 basis points (bps) from the monthly CPI ex food & energy.

This, of course, is nonsense. It was so ludicrous, even the Fed was forced to comment on it.