Edited and Curated by ZYTrade
The Labor Department’s consumer price index surged 5% year-over-year in May, the largest increase since August 2008 when oil was $140 a barrel. But don’t worry, Americans. The Federal Reserve says inflation is ‘transitory’ and that it has the tools to control prices if they start to spiral out of control. Let us pray.
Nobody should be surprised that prices are increasing everywhere from the grocery store to the car dealership. Demand is soaring as the pandemic recedes while supply constraints linger, especially in labor and transportation. As always, this is a price shock largely made by government. Congress has shoveled out trillions of dollars in transfer payments over the past year, and the Fed has rates at zero while the economy may be growing at a 10% annual rate….
Congress’s $300 unemployment bonus and other welfare payments for not working have contributed to an enormous worker shortage, which is magnifying supply shortages.
All of this is showing up in higher prices. Over the last 12 months, core inflation excluding food and energy is up 3.8% and much more for used cars (29.7%), airline fares (24.1%), jewelry (14.7%), bikes (10.1%) and footwear (7.1%). Commodity prices from oil to copper to lumber have surged. Higher lumber prices are adding $36,000 to the price of a new home….
What Congress has given in relief payments, inflation is taking away. The Fed says annual inflation only looks high compared to depressed pandemic price levels. But core inflation on an annual basis was 9.2% in May and 5.2% over the first five months of 2021. Most ominously for the political class, rising inflation for the last two months has outstripped wage gains, meaning that real average earnings have fallen.
The Fed believes all of this is temporary, that supply shortages will work themselves out, and the demand surge will subside. Chairman Jerome Powell may even want more inflation since his new policy doctrine, issued last year at Jackson Hole, is to wait until inflation averages higher than 2% for a sustained period. Markets may agree with him, as bonds and equities reacted to Thursday’s price news with relative calm….
What’s undeniable is that Washington is conducting one of the most radical fiscal and monetary experiments in peacetime history. Even if the current inflation is transitory, Americans are paying more for it now.
Original post on WSJ
Trading futures, options on futures, and forex involves substantial risk of loss and is not suitable for all investors. The use of leverage is not suitable for all investors and losses exceeding your initial deposit is possible. Carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources and only risk capital should be used. Opinions, market data, and recommendations are subject to change at any time. The lower the margin used the higher the leverage and therefore increases your risk. Past performance is not necessarily indicative of future results.