Low Inflation? Asset prices at higher levels suggest otherwise

Last month, the Bureau of Labor Statistics reported that consumer prices rose at an annual rate of just 1.2% in November. The weakness was largely driven by energy prices, which are still down from the same period last year due to lower demand.

However, other commodities – particularly food and property supplies – rose in price last year, leading many to wonder where the 1.2% inflation figure is coming from.

Take a look below. In the last six months alone, wheat prices have burned up more than 25%, corn 35%, soybeans 50%, as Chinese grain imports are hitting higher levels. I don’t know about you, but my food deliveries have gotten a lot more expensive in recent months, so I have to question that inflation is below 2%.

The same goes for building supplies, especially wood and copper. For the past six months, timber prices have risen by 275%, as many mills have had to close for some time due to the pandemic.

Copper, meanwhile, is the best performing base metal per annum, up more than 32%, replacing other metals such as zinc, nickel, tin, aluminum and lead. The red metal, found universally in electrical wiring and building construction, has benefited from global scarcity and strong Chinese demand.

The price increase has benefited copper producers. Freeport-McMoRan, one of the world’s largest copper miners, was among the top 10 S&P 500 stocks in 2020, up 100%. (Tesla, which joined the S&P on December 21, was the single largest stock of the year, having returned more than 755%.)

Awesome, endless inspiration in a scene

Looking ahead in 2021, I expect even higher inflation largely due to easy monetary policy as well as additional stimulus from the government. Today, the combined balance sheets of the Federal Reserve and the European Central Bank (ECB) as a whole are spinning a $ 16 trillion head. By the end of the year, the two central banks are expected to grow holdings at $ 240 billion per month, or about $ 2.88 trillion, according to Ed Hyman of Evercore ISI.

Then there is also the $ 900 billion fiscal stimulus signed into law and the “most likely” $ 500 billion in the second quarter of 2021, Ed says.

These programs push up asset prices, from stocks to commodities, and that includes housing. Home prices, as measured by the S&P / Case-Shiller Chart, rose to a new high in October, the most recent month of data. At an annual rate of 8.4%, home prices are rising much faster than the key inflation rate of 1.2%.

Gold had its best year in a decade; Beat Ethereum Bitcoin

Like other hard assets, 2020 was a very good year for gold and Bitcoin as investors, worried about cash losses from all cash registers, sought reliable sources of value. Gold rose over 25%, the best year in a decade. The yellow metal has now finished the year up in 16 of the last 20 years, or 80% of the time.

As for cryptocurrencies, Bitcoin has been the focus of attention because it hit a new record high of $ 34,800. But don’t overdo Ethereum. The world’s second largest digital coin outperformed Bitcoin in 2020, by a factor of 2.5.

These prices have been a great fit for crypto miners such as HIVE Blockchain Technologies, the only public trading company that mines both Bitcoin and Ethereum. I’m happy to tell you that HIVE ended the year up an amazing 2,400%. The company remains the largest liquidity of any registered crypto company, having traded more than 1.7 billion shares in Canada by 2020, half a billion in the U.S.

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