Summary

The article discusses the concerning trend of inflation rates in the U.S., which have risen significantly from the previous year and are exceeding monthly targets, indicating a persistent issue that may not improve in the near term.

Abstract

The recent inflation report indicates a 5% increase in consumer prices compared to the previous year, a figure that is problematic as it surpasses the average annual salary increase. The article highlights that while this number reflects the contrast between the economic downturn of May 2020 and the current situation, the more pressing concern is the consistent monthly inflation increases seen over the past year, all of which have exceeded the Federal Reserve's 2% target. On an annualized basis, the rates are even more alarming, with recent months showing rates that could be indicative of dangerously high inflation levels. The article also touches on the implications of inflation, such as its impact on consumer purchasing power, wages, investments, and public policy, noting that almost no one benefits from high inflation. Assets like stocks, real estate, gold, and bitcoin are suggested as potential hedges against inflation.

Opinions

The author acknowledges that the 5% inflation rate is not ideal and is particularly concerning when compared to typical salary increases.
There is a suggestion that the current monthly inflation increases are more troubling than the year-over-year comparison, given their persistence above the Federal Reserve's target.
The author expresses concern that the annualized inflation rates are trending towards levels that could be considered dangerously high.
The article implies that the Federal Reserve may not prioritize addressing inflation in the immediate future due to other economic concerns.
It is suggested that consumers and investors should consider holding assets that can benefit from inflation, such as stocks, real estate, gold, and bitcoin.

Inflation Won’t Get Better Anytime Soon

Annualized figures will stay above desired amounts

The headline news from Thursday’s inflation report was that consumer prices rose 5% from last year.

That’s not an ideal number. It’s far higher than most people’s annual salary increase.

But to play devil’s advocate, the 5% increase shows the difference between May 2021 and May 2020. A year ago, May 2020 was the height of the pandemic’s economic madness and had just seen two straight months of deflation.

A bigger concern should be the recent monthly increases.

Monthly Increases

After seeing deflation during some pandemic months, the last twelve months have all seen positive inflation numbers.

Below is a table showing the percent increase in consumer prices, on a month-over-month basis.

So, for example, inflation increased 2% in September 2020 when compared to August 2020.

June and July’s large numbers were a result of deflation the previous few months. The alarming sight is how we have started 2021.

All of the numbers in 2021 are above the Federal Reserve’s goal of 2% annual growth.

Annualized Increases

On an annualized scale, things look worse.

The 6% increase of March and May on an annualized basis is 7.2%. And the 8% in April is annualized at 9.6%.

That's treading on dangerously high levels of inflation. Those won’t be seen, hopefully, but even dealing with those numbers monthly is not ideal.

Since inflation is an increase from a previous number, it takes more in the future to move it the same percentage value.

If May 2020 is the base period of 100, using the monthly increases leads us to a 5% increase by May 2021.

Something that cost $100 a year ago would theoretically cost $105 today.

2021 is not off to a good start. Five months in and we already see inflation has increased more than 2%, with seven months still to go.

The True Inflation Number is Frightening

It’s more than the 2% we’re led to believe

medium.com

The Impact

The direct impact is obvious — consumers will have to pay more for the same items than previously.

But inflation impacts a variety of other situations from wages to investments. Public policies and benefits are also tied to inflation numbers.

Almost no one wins from high levels of inflation. One way to take advantage is to hold assets that benefit from inflation. Stocks and real estate are generally considered assets that can be propped up in value due to inflation.

There are also assets such as gold, or bitcoin, that are considered inflation hedges.

Inflation likely isn’t going anywhere soon. The Federal Reserve has other concerns about the economy before addressing inflation. You can’t change inflation, but you can do certain things to protect yourself against it.