Prices are Rising. Is Inflation a Real Concern?

A surge in consumer demand and supply chain bottlenecks due to the pandemic are triggering a rise in prices. Should you be concerned about inflation? The Consumer Price Index (CPI), which measures sale prices for goods and services, increased 0.6% on a seasonally adjusted basis in March, according to the Bureau of Labor Statistics. That was a steeper rise than February and the one-month increase was the largest rise since a 0.6% increase in August 2012. [1]

There were several industries influencing the CPI: The gasoline index rose 9.1% in March and the natural gas index also rose, leading to a 5% increase in the energy index. And the used cars and trucks index rose 0.5%. [2] Data from the Manheim used-car index shows used vehicle prices have increased 32% year over year – an all-time high. [3]

It’s not too surprising that prices are rising. Economies are reopening, many Americans received stimulus checks, and thus demand for goods is increasing. And there are global supply chain issues due to the pandemic and weather-related disruptions that are slowing things down and frustrating companies and consumers alike.

There’s also a long list of commodities that are getting more expensive – from plastics, steel and wood to adhesives and resins – and many are in short supply, according to the Institute for Supply Management. The Institute for Supply Management’s index for new parts and materials orders in March hit its highest level since January 2004, while the index for order backlogs, one of the best U.S. metrics for how quickly manufacturers are meeting demand, was at the highest level in 28 years. [4]

The spread of the vaccination will continue to boost demand – and potentially prices – in areas such as travel, hospitality and events. After a year holed up at our homes, Americans are rushing to book summer travel -– driving up the prices of car rentals and vacation homes.

Spending on goods is expected to drop back slightly over the next couple of months, but as more people get vaccinated and more restrictions are lifted, discretionary spending may reach a more-steady level.

It’s good news to have our economies re-open, but as prices continue to increase, concerns about inflation will grow. The Federal Reserve will likely continue to take the stance that higher prices are temporary. But, in the meantime, the risks are rising.

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1 https://www.bls.gov/news.release/cpi.nr0.htm

2 Ibid.

3 https://www.barrons.com/articles/the-used-car-bubble-how-sky-high-pricing-is-good-for-stocks-51618265625?siteid=yhoof2&yptr=yahoo

4 https://www.pressherald.com/2021/04/27/u-s-companies-bump-up-prices-on-supply-squeeze-demand-boom/

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