Thought of the Week / August 13, 2020
Inflation is here, but is it here to stay? According to the Labor Department’s newest CPI numbers, released on Wednesday, consumer prices are up 5.4% from a year ago. We can see the signs of inflation clearly when we’re filling up our gas tanks, shopping for appliances or a new car, and even when buying a cup of coffee.
So, is this a new way or life or just a “temporary fix” to the economic mayhem that was 2020? The Federal Reserve, whose job is it is to keep pricing stable, has repeatedly stated that the current increase in inflation is transitory as the economy adjusts.
Aside from the increase in prices year over year, the July CPI numbers did give us a glimmer of hope. Core inflation only increased by 0.3% in July after increase of 0.9% in June. This came in below the expected 0.4% forecasted increase for July, which shows that inflation has paused for the moment.
On Thursday of this week, the Dow rose 14.88 points and the S&P 500 climbed 0.3%. Both indexes closed that day at records highs, with the Dow Jones closing at 35,499.85 and the S&P 500 closing at 4,460.83. The Nasdaq Composite climbed 0.3% and closed the day at 14,816.26. All 3 major U.S. indexes are still elevated as of noon today, Friday, August 13th.
In summary, the inflation data from July seems to support the Fed’s belief that the recent inflation is due largely to transitory factors. An indicator of this is that the price for used cars and trucks has declined from a 10.5% increase in June, to only a 0.2% increase in July. It seems that the supply and demand mismatch is beginning to work itself out as the global economy gets back to normal.
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