Timely and Relevant News: Economic Lessons on Inflation
Inflation is defined as the general upward price movement of goods and services in an economy. The key word is “general.” Inflation tends to be uneven and affects the price of some items more than others.
If you’ve been in the market for a used car, you’ve learned a critical economic lesson about the “uneven” side of inflation. The overall rate of inflation has been 5% for the past 12 months. Meanwhile, the average price of a used car is up 30% from a year ago.1,2 Various factors drive used car prices, including a global microchip shortage.3
It is worth noting that "base effects" from rolling off weak data from a year ago held the promise of eye-popping year-over-year numbers, along with an economy that would be increasingly reopening. It's no surprise that those two factors could lead to potential inflation.
Demand for used cars may slow later this year as automakers return to normal production levels. As the market shifts, some people who bought used cars may learn another key economic lesson: they might owe more for their car than what it’s worth as prices return to historical levels.4
According to the Consumer Price Index Summary from the U.S. Bureau of Labor Statistics, energy prices also climbed 1.5% month over month. If you have recently taken a trip to the grocery store, you probably have also felt inflation in your grocery bill. Shoppers are paying higher prices for everything from beef to pork to milk.5 Food prices increased 0.8% last month according to the CPI Summary.
Overall, U.S. consumer prices rose last month at the fastest pace since August 2008. The CPI Summary states that the consumer price index rose 0.9% in June, faster than the 0.6% increase in May.
Inflation has a direct impact on the markets. Inflation impacts the rate of return on investments, along with purchasing power. It's important to remember that markets are forward looking. Markets are no longer waiting to see if inflation will spike. It already has. A pickup in volatility would be normal at this stage of a strong bull market. We think suitable investors may want to consider "buy the dip" opportunities as they arise.
If you have questions regarding your investments, inflation or the markets, we welcome you to Contact Us to set up time to discuss further.
Sources:
1. CarandDriver.com, June 5, 2021
2. APNews.com, June 22, 2021
3. ConsumerReports.org, June 10, 2021
4. Forbes.com, June 14, 2021
5. CNBC.com, June 26, 2021
https://www.bls.gov/news.release/cpi.nr0.htm