Market Commentary

Inflation

Inflation

We have seen a strong spike in inflation after the presidential election. Prior to covid, it was running about 2.5% and now it is double that. The 3-year inflation expectations put out by the government suggests that inflation will run at about 4%.

Recently, the CPI (Consumer Price Index) reported an increase of only .3% for August after a .5% increase in July and the core CPI increased .1% from .3%. The import price index shrank .3% after being up .4% so inflation is calming down and the expectation of 4% over the next three years may be achievable. That is still higher than the long-term average of 3.3% for the U.S. but with the huge federal debt, a higher inflation rate is preferable.

However, there is a threat of wage inflation that seems to be building. Inflation is usually expressed in the cost of goods and services, but wage inflation will drive those costs up. There also has been no weakness in oil prices which is a cost most consumers must bear in the form of gasoline prices. Elevated Inflation may just be stubborn enough to be with us for a long time