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Ukraine and the Next Wave of Inflation, Part I

Inflation from Useless Ingredients

The cause of rising prices is not always monetary. Before Covid, we wrote a lot about mandatory useless ingredients. This is when regulators and taxinators force producers to add things to their products, which buyers do not care about (and often do not know about).

There has been a steady march of added useless ingredients over the decades. But, like watching a child grow taller every day, you may not always think about the big change compared to five years ago (or 50 years ago, in the case of useless ingredients). It would be very difficult to estimate how much useless ingredients have added to the prices of each good.

How much do all the required airbags add to the cost of every new car? How many costs are added by all the emissions gizmos, and safety devices? The same is going on, in the fuel you pump into the car, the tires you drive on, and everything you put in the trunk when you go shopping.

The cost of these useless ingredients is high and rising. Before Covid, this was the biggest driver of inflation.

 

Image via rte.ie

Inflation from Trade War

For a few years prior to the virus, another driver began to emerge. Trade war. For us, this is a broader term than just tariffs. Though, there have been many tariffs added in recent years. Some readers may assume these are targeted at China due to its military threat, but there have been American tariffs imposed on Scotch whiskey, Canadian lumber, and many other things. Like useless ingredients, the consumer is often unaware of tariffs and how they drive up the price of the 2×4’s they buy. So they assume that the cause is simple money printing.

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