Wednesday Musings

Wednesday Musings

“The question isn't who's going to let me; its who's going to stop me”

– Ayn Rand

This past week Markets (S&P500) were down 2.5%, and are now up 8.5% for the year.

Inflation fears are driving heightened volatility in markets. Today CPI, or The Consumer Price Index, was released and came in far above expectations. The estimate was 0.3% growth month over month, and 3.6% growth year over year. These numbers came in 0.9% & 4.2% respectively.

As you can see from the chart below this is the highest level since 2008.

The Federal Reserve believes this inflation is transitory, meaning it is temporary and it will pass. When you look beneath the hood of this number I tend to agree with them.

The leading driver of the increase in prices was used cars and trucks, which rose 10% in just one month, the largest gain ever for the series, which dates back to 1953. There is a massive chip shortage going on right now and it is practically impossible to buy a new car. This chip shortage, which is causing and automobile shortage, will be resolved. Once this is fixed supply will drastically increase, and prices will decline.

Other key contributors were airfares (10.2%), hotels/motels (8.8%), two industry's ravaged by the economic effects of COVID, where supply has been reduced are now dealing with a vaccinated population ready to travel. As time goes on additional flights and hotel rooms will be created and prices will fall. The last item is car and truck rental prices up (16.2%). Many of these car rental companies had to sell parts of their fleet last year to stay afloat and now can't buy new cars. Interesting situation, but temporary, or as the Fed would say, "Transitory."