Fed Says Don’t Worry About Inflation, But Should You Get Complacent?


Even Transitionary Inflation Could Cause a Lot of Pain

If you’ve been following the Federal Reserve over the past few months, you’d know that its stance on inflation has been very rigid. The Fed isn’t concerned about inflation in the U.S. economy, whatsoever. It has repeatedly said that if there’s any inflation in the near term, it would only be transitionary.

But should you, the investor, be complacent? Short answer: no. Even if the inflation is transitionary, it could bring a lot of pain.

You must pay attention to the prices of very basic things; they are currently soaring.

Consider the chart below. It plots the price performance of commodities like corn, coffee, wheat, and soybeans over the past year.

Notice something?

Corn prices, for example, have surged 109% over a year. Remember, corn is used in a lot of foods we eat. Will we be paying more money for food items? Coffee prices have surged by more than 30%. Will your morning coffee prices jump?

Chart courtesy of StockCharts.com

Here’s the thing: in the short term, we may not see these commodity-price increases show up in the food and beverage prices we pay. Businesses are somewhat hedged in the near term. However, one really has to wonder if the prices of basic products will remain high in the long term.

Mind you, the corn and coffee price increases mentioned above are just a few of many examples of prices of basic items jumping.

Take a look at the lumber market as well. It’s another place where things may be getting out of hand. Lumber prices currently stand at record-high levels, and it’s impacting everyone in the supply chain: retailers, wholesalers, homebuilders, and so on. It’s even impacting home prices.

How Long Will Transitionary Inflation Last?

Dear reader, I really buy the argument that the Federal Reserve is putting forward that the inflation we see now is transitionary and won’t be there for the long term.

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