Why Inflation Is A Moving Target

Published on: 12/17/2021

In this edition of Chart Talk, Tony Ogorek and Jeff Viksjo discuss what drove inflation over the summer, and what is being watched today, by looking at monthly inflation numbers of various categories, such as food and energy.

 

TRANSCRIPT

TONY:

Welcome to another edition of Chart Talk.  I’m Tony Ogorek. I am here with Portfolio Manager Jeff Viksjo.  And today Jeff we’re going to take a look at an inflation chart which is really cool.  It takes a look at monthly inflation numbers by various categories; such as energy, food, etc.  So, let’s take a look at this chart and what conclusions can we draw from it?

JEFF:

So, if you look at the monthly inflation numbers on the bottom, inflation peaked in June.  It’s important to see why.  This chart does a nice job of showing what was happening in the summer months.  And really what we saw was a spike in used vehicle prices.  It made up almost half of that number. Used vehicle prices were going up because, basically, there were no new cars available because of the chip shortage.  So, everyone was buying used cars.  That’s gone away.  That has not been a factor anymore.  It’s a transitory small blip.  Why we’re paying attention to inflation is we’re wondering what the Fed’s gonna do.  They’re looking at inflation numbers saying, ‘do I need to raise interest rates to combat inflation?’  These temporary blips don’t matter.  They’re not going to raise rates because of that.  We care about things that are more, longer lasting.  If you go to today, inflation has come down a bit, but it’s a little concerning on what’s driving it.  Now it’s food and shelter.  These are categories that are not necessarily a temporary blip.

TONY:

Well Jeff, the interesting thing is the Fed understands, over time, that food and energy are highly volatile sectors of the economy, and that’s why they’ve strip them out and they work with a core number which doesn’t have those.  So, again, we know energy prices are higher, but they tend to be self-correcting.  The answer to high prices, is more high prices.  That’s gonna happen.  And food, depending on what happens to the weather, can impact things.  So, again, we don’t see a convincing picture, at this point, that we’re going to have sustained high levels of inflation. But it warrants watching.  And that, of course, is what the Fed is going to be doing over the remainder of the year.

Thank you for joining us for this edition of Chart Talk.

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