Transitory Or Not, Inflation Is Here. It Could Be Much Higher Than You Realize

Transitory or Not, Inflation Is Here. It Could Be Much Higher Than You Realize

I’ve been writing about the possibility of higher inflation for months, and now it looks to have finally made landfall. May’s headline consumer price index (CPI) came in at 5% year-over-year, the highest in over a decade.

The real rate is likely even higher.

Energy commodities, and gasoline, in particular, jumped the most of any other measured item. Energy increased 54.5% year-over-year, gasoline 56.2%, as oil prices hit multi-year highs this week on strong travel demand. A barrel of West Texas Intermediate (WTI) touched $71 today, a level we haven’t seen since October 2018.

Take a look at what happens when you strip out volatile energy and food prices. Core inflation, as it’s called, surged 3.8% compared to last year—which doesn’t sound impressive until you realize that’s the fastest rate in nearly 30 years. The last time we saw core inflation this high, the top films in America were White Men Can’t Jump and Basic Instinct, and General Motors topped the list of Fortune 500 companies.

Core Inflation Surges the Most in nearly 30 years

I hope no one reading this is in the market for a new car right now. Thanks to the ongoing semiconductor chip shortage, the supply of new vehicles has all but evaporated, pushing up the price of previously owned cars and trucks. The Manheim Used Vehicle Value Index hit a fresh all-time high in May, suggesting a 48% increase in prices compared to last year. Pickup trucks were up a staggering 70%.

Wholesale Used Vehicle
Prices Maintain Record-Setting Pace

Expectations are mixed for how much longer the chip shortage will last. Goldman Sachs chief Asia economist Andrew Tilton told CNBC last week that he believes we’re in “the worst period” right now, insinuating we’ll see some improvement in the second half of the year. Patrick Gelsinger, CEO of chipmaker Intel, isn’t so sure. He says the shortage could last another two years.

Hope for the Best, Prepare for the Worst

I think policymakers and analysts are just as torn about the potential longevity of this current rash of inflation. The Federal Reserve insists on describing it as “transitory”, mostly in an effort to allay investors’ fears and calm markets.

1 2 3
View single page >> |

Watch my six reasons to invest in airlines before they make a full recovery from pandemic lows. Click here

Disclosure: All ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.