Still No Reason to Panic About Inflation

My Comments: To my mind, inflation is an existential threat when it routinely exceeds a certain percentage as defined annually. The challenge is to effectively define what is included in the measurement of cost increases and then to apply the resulting number to those who are affected.

Those range at one end from those living on a fixed income where price increases become more than existential in terms of their ability to stay alive, to those on the other end, folks whose livelihood are not threatened at all. Think high level earners on commission. (Or perhaps those guys who just elevated themselves into space.)

Inflation has been with us for centuries, if not longer. But since I’m now an old person, seeing a 50 year old advertisement for a remembered restaurant I used to visit, featuring “a sizzling 12oz. sirloin steak”, priced at $1.75 to include a salad and a baked potato, suggests prices have really gone up.

For most of my life, I found a way to increase my income, but at this stage in my life, my fear is outliving my money supply. Investing for the long haul is no longer a realistic option. At what point will I be ready to die?

by Scott Minerd \ July 14, 2021 \

June’s Consumer Price Index (CPI) again surprised to the upside, adding fuel to headline-writers’ panic about inflation spikes and market speculation that the Federal Reserve (Fed) will need to act soon to rein in prices. We are not nearly as concerned.

The upside surprise, while sizeable, continues to be driven by a few small categories seeing outsized price increases. 64 of the 88 basis point month-over-month increase in core CPI was due to new and used autos, car rentals, hotels, and airfare. By far the largest driver among those categories was used car prices, which grew 10.5 percent over the month and contributed 42 basis points to the month-over-month core CPI print, despite having a weight of just 4 percent in the core CPI basket. This is not the picture of widespread, runaway inflation.

Those in the “non-transitory” inflation camp are betting not just that these categories will continue to see high prices, but that a rapid pace of price increases will continue. Sequential inflation is much more likely to moderate from here. Hotel prices have now risen above pre-COVID levels, and wholesale used car prices have already peaked, which will soon show up in the CPI data.
For inflation to stay elevated on a more sustained basis that could pull forward Fed hikes, we’ll need to see more economy-wide price increases, especially in the categories with larger weights such as healthcare and housing. The June CPI data suggest no reason for panic there: Healthcare prices were flat over the month, while rents and owners’ equivalent rents showed no acceleration from May.

One thought on “Still No Reason to Panic About Inflation

  1. Tony B

    The great tragedy of the boomer generation: they are going to get killed trying to slay the wrong dragon. Inflation is ALWAYS an existential threat.
    Inflation is the REAL way the rich and powerful and politicians (but i am redundant) steal from you. They are all in on it. Cash and cash equivalents are the most dangerous assets you can own. An 80-20 stock/bond globally diversified pie is the antidote.


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