On 5/13/2021, the Producer Price Index (PPI), which measures the inflation rate at the manufacturing level, reported in at +6.20% annualized for this month, up 100% over last month. As energy prices increase, it is likely we will continue to see input costs go up. That said, any increase of up to 2% is not only reasonable but expected at this stage in our economy, +6.20% is not! These costs will very likely start to be passed on to consumers in the coming months, i.e. inflation!
On 5/12/2021, the Consumer Price Index (CPI), which measures the inflation rate at the household level, reported in at +4.20% annualized (highest since 2008) for this month. CPI has increased +1,400% from .3% in April 2020. That is a large percentage increase, and the shot over the bow of inflation entering the households of America that I have been writing to you about, talking with you about and investing in front of since last summer. (I remember because a few folks thought I must be crazy! Ha!)
These are very large increases, especially for producer inputs above. These are well ahead of expectations. As noted above, at the WSG we have been reallocating our clients’ asset allocations to be in front of the inflation I saw coming since last summer (summer 2020). Just to re-emphasize, in an inflationary environment you want to own real assets and the shares of Corporate America are real assets. The profits they provide are a good inflation protector. Corporate America simply passes the above noted cost increases on to your as a consumer. Corporate America does fine, we however, are about to see our home operating costs increase.
I am interested in your thoughts, comments and discussion. Feel welcome to call, email or just stop by the office and say "HI"!
Jim Lunney, CFP®
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