In case you didn’t already have enough on your plate, let us add another. Please help me welcome the guest we have all been waiting for; Inflation! Inflation brings many dynamics to the table, higher costs of goods and services being the main one. But we also cannot forget about the erosion of our savings purchasing power.

In all seriousness, inflation is not a joke. We have been warning about it for some time, and it looks like this week we have “official stats” to back up our premise. Prior to the most recent report, we had already seen the price of lumber increase astronomically, the price of food, gas, raw materials, shipping, etc. all increase substantially. Below we look at the most recent inflation stats released in May for America.

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Consumer Price Index Summary

In this article, we won’t go into detail about how inflation is calculated. The only thing you really need to know is that reported inflation is based on the Consumer Price Index (CPI). The CPI is essentially a basket of goods and services. The relative increase in the price of those goods and services is inflation.

If you want to read our other thoughts on inflation, search “Inflation” in the search bar on the right. Here are a couple of articles we have written on the topic:

• The Ongoing Inflation Façade
• Inflation is Higher Than You Think
• Is Hyperinflation on the Horizon?

In the report by the US Bureau of Labor Statistics, they report that the month over month increase from March to April was 0.8%. The yearly increase from April 2020 to April 2021 was 4.2% before seasonal adjustments. This marks the highest 12-month period of inflation since September 2008.

There were some pretty notable statistics in the report (which we will link to at the end). For instance, the index for used cars and trucks rose 10% in April. This is reportedly the largest monthly increase since the series began in 1953. Food increased by 0.4% month-over-month in April. Which, if annualized is still a 4.8% increase. Well above the desired 2-2.5% inflation target.

If you exclude food and energy from the index, it rose by 0.9% in April. This is the largest monthly increase since April 1982. Below is a chart outlining the monthly CPI changes month over month for the last 7 months. Is also important to remember that current inflation stats are skewed down after all the changes that have been made to the inflation calculation of the years dating back to the 80s.

“It’s Transitory Inflation”

At first when the money was being printed and stimulus was being proposed we were told not to worry about inflation. We were told that inflation wouldn’t be the result. The money printing doesn’t equal inflation.

However, now that inflation is becoming a real concern, the goal post has moved. Now we are being told that, yes, we may get higher than normal inflation. However, don’t worry, “it is transitory”. Is it really though?

More and more economists and media attention is being given to the topic. Many more are coming to believe that the increased inflation isn’t transitory and that it is here to stay. If that is the case and we continue with similar figures that were reported for April we could have general annual yearly inflation of 10% or more come next April. The last time that was experienced was back in the 1980s.

Conclusion

Now that we have had inflation show up in the official numbers, what’s next? Typically we would see governments and central banks beginning to talk about cutting spending in anticipation of interest rates being hiked to help curb inflation. Government seems to be focused on providing businesses and citizens additional forms of financial support. Mention of interest rates being increased to curb inflation is completely absent any official conversation. It is safe to say higher than average inflation is here, but it’s anyone’s guess how significant or for how long.

Sources:

https://www.bls.gov/news.release/cpi.nr0.htm

https://tradingeconomics.com/united-states/inflation-cpi