Fear Of The Second Wave

Authored by Jeffrey Tucker via The Epoch Times,

This time last year, it seemed like we were just about finished with the terrible inflation of the Biden years that had trimmed at least 25 percent from the purchasing power of the dollar.

The hope has been for a year that the massive increases in money printing over the COVID years were finally done. As some put it, the snake had finally digested the golf ball.

All along we’ve worried that the experience of the 1970s would repeat: three clean waves.

After each, monetary authorities presumed that the problem was over and that life could go on as normal.

Each time, inflation fired back up again, until it culminated in an inflation of the late seventies that changed life in America fundamentally.

After that, two household incomes were more common than not, if only to maintain living standards.

We could only hope that we would not repeat that experience. Indeed, history does not repeat but it does rhyme. Authorities tend to relax in vigilance once a crisis seems to have abated.

The 2021–2024 inflation was devastating for real wages and salaries. Official data reports that they have been mostly flat and then somewhat rising. Maybe, but I personally cannot think of anyone who earned raises that have kept up with inflation over four years. That’s anecdotal, to be sure, but you are welcome to check my intuition against your experience.

We don’t seem to see moves today from the Federal Reserve that would suggest a concerted effort in the direction of easing. Money supply has not taken off and the Fed is holding interest rates rather tight for fear of igniting inflation.

It appears that the existing pricing pressures stem not from monetary sources but supply shocks. Of all the changes in goods prices that could impose the largest shock to the general economy worldwide, oil ranks near the top. Is that happening? Yes. Not only that: price trends were not heading the right way even before the war shock.

There is really bad news from the Bureau of Labor Statistics. It concerns the Producer Price Index, which registers wholesale prices in a range of goods and services. It is generally more reliable than the index for consumer prices because prices are more uniform and accessible. What the PPI does today shows up in consumer prices in a matter of months, depending.

The latest PPI print covering the month of February is sobering. The index for final demand rose 3.4 percent for the 12 months ended in February, the largest 12-month advance since increasing 3.4 percent in February 2025. That is double the forecasted increase. The most eye-popping number concerns prices for final demand goods. They increased 1.1 percent for the month.

Annualize the number and you get an incredible 13.6 percent, the hottest in more than 3 years. This is double-digit, which itself gets us into a strange psychological place. It kicks off panic buying and hoarding.

A longer-term look, again from February before the oil price spikes, shows the worst annual rate of change in goods prices in two years. This will feed into consumer prices through the summer, even if the crisis ends now.

That’s a number roughly equivalent to 1979-level inflation. So far it is only hitting wholesale prices but those are passed on to the retail level. And keep in mind that these February numbers were assembled before the Iran war throttled shipping traffic in the Strait of Hormuz, causing a huge price spike in oil that quickly folded into a gas price increase that you likely know all too well.

The oil price spike has profoundly affected people the world over. We are looking at nearly a doubling of the price since the war began. And the problem is getting worse, not better.

Gasoline is rising now at a pace not seen in more than 30 years. It also seems to be accelerating. My back of the envelope calculation over the last four years suggests it is rising 2 cents per hour.

This isn’t just about the ways this price affects your driving. It hits every form of transportation from trains to planes to trucks. Tickets are already soaring in price but this also bleeds into goods prices at the stores, especially food. Anything that travels to retail outlets by truck is being hit hard now, as you already see in the rising cost of coffee.

None of these are good signs.

Yes, it could all flip the other direction if the war ends today but it will be months before prices settle down again even under the best of circumstances.

Now let’s turn to real-time numbers as calculated by Truflation. It’s become very apparent that the good trends have already reversed in the other direction. From a low of 0.6 percent, we are now running 1.51 percent. More telling is the real-time number on good inflation. That is running 3.4 percent, the highest in 3 years.

At this point, there is no avoiding the results of the inflation that already exists.

How likely is a full blown energy crisis of the sort we saw in the 1970s? As we should all realize, that crisis was not only one of prices. It was the attempt to keep the price low with forced caps that caused the widespread shortages and gas lines. There is no question that this would happen again should the Trump administration pursue price controls on gasoline.

In 1971, Richard Nixon imposed wage and price controls. He did not want to do that. He never imagined conditions would ever arrive in which he would push that button. But for him, it was a necessary expedient, the least bad of all possible choices. Moreover, he knew that it would not work but believed that the public needed to see him doing something to show that he cared and was acting on the problem. Trump might be drawn into something similar.

One hopes that the Trump administration would not do that. But one cannot know for sure, sadly. It is the nature of any government to panic with falling poll numbers, parabolically rising energy prices, and a profound sense of a loss of control. All these factors are happening right now.

I never watch mainstream media but a couple of days ago, I caught a broadcast on television that had nonstop messaging about gas prices. This is for obvious reasons related to politics but there is also something real going on here. For all the tax and regulatory cuts in the second Trump administration, the inflation pressures threaten to wipe out any and all income gains. Indeed, this inflation puts the entire second term at risk in ways the White House surely understands by now.

Again, the cause of the price increases are a combination of factors but this one, unlike the last one, seems to be pushed by a supply shock rather than monetary factors. In a practical sense, for businesses and consumers, the impact is the same. It means that money buys less and that balance sheets are put under extreme pressure.

I’m sorry for the bad news and I try to avoid apocalypticism. Wishes aside, and regardless of one’s views of this Iran war, the reality is before us and it is undeniable.

We could be seeing a second wave of effective inflation kicking off that will create some serious economic disruption in all directions.