The Consumer Price Index or CPI, which measures inflation on the consumer level, rose in the month of July by 0.5%. Year over year, the index rose by 5.4% which is the highest yearly increase in over a decade. Core CPI, which strips out food and energy prices, was up 0.3%. Year over year, Core CPI, slightly decreased from 4.5% to 4.3%. The previous reading, 4.5%, was the highest reading in almost 30 years! About, 20% of the CPI’s increase was due to higher pricing for automobiles and their parts. Airline passenger services and hospital outpatient care were also other parts of the report that saw heavier pricing gains.
The Producer Price Index or PPI, showed that inflation on the wholesale level rose by 1% in the month of July. Year over year it rose much higher than estimates to 7.8% which is the highest number since recordkeeping began in 2010. Core PPI, which strips out food and energy prices, rose by 1.0% in the month of July. Year over year core PPI rose by 6.2% which came in much higher than expectations and was up from 5.6%.
One way the Federal Reserve can assist to temper inflation would be to taper their Quantitative Easing or their mortgage-backed security and Treasury bond purchases. Chicago Fed President, Charlie Evans said that he thinks the Fed will make a decision on tapering at their December meeting with tapering beginning early 2022.
Once the Fed, tapers their QE program or even starts to talk about a tapering plan, you will start to see mortgage-backed securities drop in price and interest rates begin to creep higher.
Bottom line you have to keep an eye on inflation and how the Fed reacts as they both have a very large influence over interest rates. You must work with a trusted advisor who has an understanding of this and who can advise you of the current state of the markets and how to work it into your plan.
Source: https://fxn.ws/3xOpjce
By: Jon Iacono