Last week, the latest inflation numbers were released from the US Bureau of Labor Statistics’ Consumer Price Index. This index showed that for the month of April, consumer prices increased by 0.8% and a very large 4.2% year over year. This came in much higher than the expected 3.6% and was the sharpest increase since 2008. Core CPI, which excludes volatile food and energy prices, came in at 0.9% for the month and 3.0% year over year.
Digging deeper in the report, we saw that energy prices rose 25.1%, used car and truck prices increased by 21%, and rents increased by 2.0% compared to last year. Delivery food also increased year over year by 3.8%. Another large reason for this jump is that this index is based on a “rolling” twelve-month scale, so with every new month’s report, the oldest month falls off. Last April, the monthly number was a negative 0.4, which was replaced by April 2021’s positive 0.8%. Since the economy is heating up and spending is increasing, the new hotter replacement numbers are replacing cooler, even negative numbers that were from the beginning of Covid where spending was very tame.
Within our March 22nd update, we actually predicted that this could happen! In that update, we said, “Going forward, it appears that inflation will be continuing to rise. The inflation numbers that were released this time last year were very low, and in some months actually negative. For example, The CPI for April was negative 0.4 and negative 0.1 for May, respectively. So as the current data continues to replace the old numbers, we are seeing inflation at much higher levels.”
Inflation is very important to monitor. As it increases, investors lose their appetite for bond purchases because it erodes their return on investments. When less bond buying occurs, bond pricing drops since there is less demand. As a result, long term interest rates, like mortgage rates, then increase. Bottom line is that it’s very important to keep an eye on inflation and work with a trusted advisor who has an understanding of how it can impact interest rates and the market and can advise you of the best plan for your scenario.
Sources:
https://cnb.cx/3y9DcD9
By: Jon Iacono
