Money not going as far? Yeah...me too.

Inflation is up, and it is up a lot. For your daily life, it means things are more expensive. Some of it is temporary and some of it is not. At a higher level, wages are growing faster than inflation and will continue to grow faster for at least the next couple years. Many say this phenomenon of inflation at 8% is temporary, and some feel like it’s a bellwether and the piper will finally be paid for expensive things like Medicare and Social Security, the country’s most costly entitlements. (Medicare and Social Security benefits are not in jeopardy, by the way. They could be fixed with relatively minor changes, but that is for another blog article.

The fact is that over half of the inflation number is situational. For example, one-of-the-eight percentage points is the cost of cars, and three-of-the-eight percentage points is fuel. So literally half of the inflation relates to travel costs. Now I am not saying they are not real. They’re real. But if that’s true, and when gas was $2 a gallon, it’s inflation was zero, what has to happen for inflation on gas to go up? It’s an important point! If gas is still at $4 a gallon in a year, has it inflated? No it has not. If it were to continue to go up at the same rate, that means inflation would take gas to $6 a gallon in a year. Why won’t that happen? (By the way, the cost of cars has already begun to normalize) There are 1300 well heads in this country (sea and land), and only about 630 of them are in operation. That is because in order for it to be cost effective to pull that fuel out of the ground, there has to be oil at over $40 a barrel in some instances and over $65 a barrel in others. Right now a barrel of oil is over $110 a barrel. I might add that it takes no act of congress for these wells to be turned back on. What DOES take an act of Congress is NEW WELLS. But it does take people, and it takes some time to get those people hired and the wells functioning. Also, while we’re on the subject, THE PIPELINE IS NOT CLOSED. I can’t even count the number of times I have heard that. The US natural gas and oil pipeline grid – which looks a lot like the US interstate highway system – is fully functional. What HAS been stopped is construction on the Keystone XL pipeline. It’s been under construction since 2006, and do you know how much less oil is created as a result? ZERO. The Keystone XL pipeline which is kind of a shortcut from Canada to the coasts has never been operational. Never. All it would do is shorten the trip oil, natural gas, and refined products – all of which flow through the pipeline – have to take to get to market here and overseas. One other point about this…essentially, we use no foreign oil. “But Mike, but Mike! I heard a congressperson say we use Russia’s oil and we need to stop!” OK, fair, but what amount of oil do we produce? Expectations for 2022 are 20.1 million barrels a day here in the US. And what do we consume? 20.5 million barrels a day here in the US. All of OPEC – which consists of 15 countries and includes Saudi Arabia, Iraq, Kuwait, Libya, and others – produce only 33.9 million barrels a day. And over half our oil rigs are not currently operating! What this means is that we can easily be a net exporter of oil, natural gas, and refined products, and the current known reserves here in the United States is larger than anywhere in the entire world. Do I like inflation? No! No one does, although it does mean there is growth happening. But the number is not telling the whole story. Expectations are that 10 years from now, the average inflation rate will be about 3%, which means a lot lower inflation is only a few months or years away.