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Inflation Levels Rising…

Hey Market Pilot,

All eyes have been on the inflation numbers, both consumer (CPI) and producer (PPI). This is because inflation is an old foe that America has had to fight. If left unchecked, it can get out of hand. We are familiar with the stories in the past from other countries where people were moving money around in wheelbarrows just to purchase a loaf of bread. This is the fear that is ingrained in our memories when we worry about inflation and look for even the slightest hint of it.

Therefore the release of the CPI and PPI numbers are very important. The most recent July core CPI numbers rose by 0.3%, which is less than the 0.4% expectation, and well below June’s 0.9%. The market seemed to have taken this as good news for two reasons:

1) Inflation isn’t rapidly accelerating

2) The Federal Open Market Committee (Fed) is unlikely to taper right away due to an overly hot economy.

This translates into continued stimulus from the Fed and manageable inflation. The PPI numbers were also released and while they were up to 7.8% in July from 7.3% in June, the market doesn’t seem to be too concerned about that right now. However, it is wise to point out that 7.8% is the highest level since the index was reconfigured in 2010, and possibly the highest reading since the early 1980s.

So, is this going to be a problem, and are these numbers the start of something serious? We are all wondering that and it will take time to know. It is also tough to do anything about it right now since the Covid-19 pandemic is around and the economy is trying to get back on track. Add to this that the Fed said they are willing to let the economy run hot for a while in order to help the job market come back and build up strength.

Your Profit Pilot, TG


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