Several months into what policymakers hope will be the post-Covid economy, several sectors of the economy have reported rising prices. In May, the Bureau of Labor Statistics reported a 0.6% month-to-month increase in the CPI, and a 5% increase over the same time last year.
The full impact of these numbers remains hotly debated. Some investors urge caution, pointing out that a 5% year-over-year increase is the largest CPI jump since the Great Recession.
Once inflation gets going, they caution, it can quickly erode consumer purchasing power. Others suggest what has been called “transitory inflation.” This theory points to the fact that current inflation numbers are driven by a handful of sectors. The used car and truck market, for example, has increased by 7.3%, accounting for a full third of the May CPI increase alone.
Travel, too, has seen a boom, posting disproportionate price increases relative to common consumer goods like food and clothing.
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In a recent Action Alerts Plus latest Weekly Roundup, Cramer and the AAP Team take a look at how the markets have been weighing this debate, setting concerns over long-term inflation against the transitory view:
The transitory inflation argument argues that global supply chains are the real culprit behind the latest CPI numbers. Consumers have responded to loosened Covid restrictions quickly faster than suppliers can keep up. As businesses operations that lay dormant for the past year reopen, the supply of goods and services market-wide will catch up with consumer demand and inflation will stabilize. That’s the hope at least, and so far it seems that investors are betting their money that Powell is right about it.