Inflation as measured by the July CPI came in at +5.4% year over year with core CPI (excluding volatile food and energy) at 4.3% year over year. Core CPI has not registered above 3% year over year in over 25 years. However, this is a bit misleading as it is compared against the low of the pandemic last year when prices plummeted. Even so, CPI annualized over the past two years is still above average at 3%.
The Fed has continued to express that it believes that the spike in inflation is caused by supply/demand imbalances from the pandemic that should subside as supply chains return to normal. One example of this is the 45% rise in used car prices over the last 12 months due to a lack of new cars. This certainly can’t continue and will normalize as production comes back on line.
All this said, we believe that a good majority of the inflation we are seeing is just transitory, but it is likely that inflation stay higher than we’ve seen over the past decade. If you haven’t already, we would recommend that you begin to position your portfolio accordingly. Contact us at firstname.lastname@example.org to learn how.