There’s an interesting trend happening in our economy and it has to do with the incredible increases in cost. Take for instance lumber – it is moving into unchartered territory for cost, for example a 2X4 which was at 2.50 is now $7.50. And the people are still buying. The average home is about 20% made of wood and so you can see what will happen to the cost of a new home.
Warren Buffett is warning that the cost of goods is soaring in almost every sector. Because people have been home, and many have more disposal income than ever and they are spending though the costs are rising. There are shortages in fuel, in electronics, in many products which are part of our every day life.
GM has been producing vehicles without microchips and are simply parking them until they can get the microchips and have then inserted. In some cases manufacturers are skipping the 2021 model year all together and are moving to produce the next model year instead.
The pressures on the housing market are especially noticeable with surging prices. And when prices surge people get worried they will get priced out and hurry to get into the market putting more pressure on the market adding to the problem.
So what’s likely to happen? Well I’m not an economist but I think you can expect inflation to soar especially after we get past this global pandemic and people begin to travel and shop. The likely response to this will be for the Bank of Canada to raise interest rates, which will likely be proceeded by the USA federal rate. These moves will bring pressure on the markets and we could likely see a certain correction in the market.
When I hear Warren Buffett say it’s coming, well I tend to believe it’s coming.