Transitory Inflation Is Like a Jet Pack

Think of transitory inflation as a jet pack.  It’s that burst of energy to prices that kick them up a notch whether you are ready or not.  Then once up higher, would take an over production of supply verses demand or a contracting economy to drop prices.  Well, PPI and CPI numbers came out this past week and hit big big numbers.  The Producers Price Index (PPI) measures the cost of producing a product.. sourcing it, manufacturing it, shipping it.  PPI was up 8.6% year over year and .6% month over month.  This is the highest this number has ever been.  The big lift was gasoline, which rose 6.7% and cars and car parts which were up 8.9%.

The Consumer Price Index (CPI) measures the cost of things you and I buy.. both goods and services. The headline number was up 6.22%, the highest it has been since 1990.  Many economists think this could hit 7% before it cools.  Cars were up 9.8%. Meat and eggs up 11.9% … there are more than just health benefits to being a non-driving vegan.  Wages were up 5% of which hospitality jobs were up 12%.  Restaurants can’t find help, so they are paying them more.  This on the back of lower revenue and a hard two years.

I’m not a doom and gloom girl.  I’m just not.  This isn’t “bad” news… it just is.  It’s the product of a culture who likes to spend and when we couldn’t spend on services due to the pandemic, we turned to goods.  Goods that we no longer produce.  We’ve outsourced the production of those goods to lower cost countries that have to ship those goods to us…but, now those goods are sitting on boats, in containers, off shore.  Demand increased, supply constrained, prices went up.  The problem is.. the prices won’t necessarily go down.  Some will, but labor won’t.  No one that got a 5% raise or quit their current job to get a higher paying job (quits are at an all time high by the way), will offer to give that raise back.  Those increased labor costs will work their way back into the goods and services we buy… including housing.

Inflation overshoot will likely get worse before it gets better.  This will allow the Fed to start increasing rates sooner than planned, the Fed Rate will move markets.. the 10 yr treasury and then the 30 yr fixed.  So as the cost of all things continues to go up, so will the cost to borrower to buy those things.  If there were ever a battle cry to not wait, to buy now, to stop paying rent which is up 20% annualized, now would be the time.  This is my plea, to help everyone hedge against inflation, locking in their monthly payment and allowing the asset to grow personal wealth and options.

 

[author] [author_image timthumb=’on’]https://www.theruethteam.com/wp-content/uploads/2020/11/testimonial_image.jpg[/author_image] [author_info]Nicole Rueth has been passionately advising clients on their wealth building and home financing strategies for over 17 years. Her path has been non-conventional and it is a benefit to her clients.  www.TheRuethTeam.Com.[/author_info] [/author]