Inflation Flies to Highest Level Since 1982

The widely followed Consumer Price Index was released Friday morning, indicating the retail level inflation rate to be the fastest increase in 39 years. The report showed inflation has become widespread, consistent and persistent. The volatile food and energy components led the hike, but shelter costs also rose sharply. Although supply chain problems explain some of the sharp rises in prices, many economists, including some on our Federal Reserve Board, fear the rate may remain high for months or years to come.

Next week, the Fed will hold a meeting to provide more insight and share plans to wind down their bond-buying program and plans for rising interest rates in response to inflation concerns. The Fed’s policy to raise interest rates is, in effect, their method of applying the brakes to inflation. Precious metals did not respond to the CPI announcement, rendering little change on the week. Gold for February delivery traded at $1,783 per ounce, while silver brought in $22.15 on Friday afternoon.

Lumber Locks Limit Up

The shelter component of the inflation index was heavily influenced by lumber, which exploded to the permissible limit up price on Thursday and Friday. As a result, it ended more than 130 percent higher than in August.

New home and apartment construction is increasing demand, as is remodeling. The fires out west have reduced supply just as the demand increases were driving prices higher from both directions. Lumber for January delivery hit $1,069 per thousand board feet on Friday.

Bean Meal Up, Bean Oil Down

The two products of the US soybean crop, which is now nearly harvested, continued to diverge dramatically this week with soybean meal, up almost $17 per ton, while soybean oil dropped nearly $0.05 per pound. Demand for soybean meal has remained high since it is a component of livestock feed, and the need to feed our cattle hogs and poultry remains high. Bean oil, on the other hand, has dropped precipitously as our transportation fuels have declined and bean oil is added to diesel fuel to manufacture biodiesel. March beans were up about 15 cents per bushel on the week as of noon Friday. Soymeal for March was $3.67 per ton, with March bean oil at 53.90 per pound.

The final 2021 crop report was released mid-week and contained no dramatic changes to the size of U.S. crops. Attention to grain traders has turned more to watching the omicron virus, the high cost of fertilizers and the weather in foreign countries.