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Conflicting Inflation Data - What is it Really Saying?

Conflicting Inflation Data - What is it Really Saying?

October 05, 2021

Investing is never easy. This is arguably the most globally complex and demanding financial environment seen in our lifetimes. We have to take the data as it comes and put it into a broader context. It’s not good enough just to pick sides in the growth vs. slowdown or inflation vs. deflation debates. The more rigorous approach is to ask why conflicting data appears and what the data is really saying.  It is very important to gather the most reliable data to determine which trend will prevail in the intermediate- to long-term time frame to capture growth and mitigate risk. 

 We have talked about Real Rates of Return in the past (Active Financial and Investment Planning and Inflation and Your Portfolio).  The 10 Year Treasury Note (US10Y) is at 1.49% and the Consumer Price Index (CPI) is at 3.71% resulting in a negative yield of 2.22%. If you change the comparison to the Producer Price Index (PPI) at 18.52% you get a negative yield of 17.03%. Okay, I can accept the notion that some of the PPI is “Transitory,” but we are all still paying more for everything we buy. The financial news outlets are speculating that the Federal Reserve will start tightening, but for now they are still adding over $100 billion into our monetary system each month. We are also in an unusual time when there is a historic mismatch in labor needed, wages wanted, and available workers. Additionally, employers are feeling margins compressing because of the production costs and supply chain issues.  Going forward Gross Domestic Product (GDP) of <2.5% will not be as strong as market estimates have predicted (see below).  There are additional charts below to help you grasp the challenges we all face.  Be aware of your overall portfolio, check the trees but study the forest, and make sure you have a diversified and strong allocation strategy, based on your risk tolerance, to ride out the ups and downs.

Inflation affects different people differently:

We can make some inferences about how inflation is impacting our personal expenses depending on our relative exposure to the individual components. Some of us have higher transportation costs, others medical costs, etc.

A conspicuous feature in the year-over-year table is the volatility in energy, significantly a result of gasoline prices, which is also reflected in Transportation.1 

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Additional Resources

      How the Federal Reserve Works

      Many people may not know why paper money is issued by the Federal Reserve and its role is in the economy.


1 Mislinski, J. (2021, September 15) Inflation: The Components 

Data and rates used were indicative of market conditions as of the date shown. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. Past performance is not a guarantee of future results.