An Update on Inflation Numbers - July 2021

I'm here in the Philly airport waiting for a flight, but I wanted to say a word before I take off. A lot of people are wondering about the inflation numbers this past week and the possibility of this kind of leading to a hyperinflation moment.

Rapid Movement from Deflation to Inflation

We do have higher than normal inflation numbers, but I think it's caused by a series of factors that are kind of coming together at once. I also think a lot of these factors will begin to subside.

Those factors would include the year-over-year numbers that right now look weird or accelerated. This is largely because in the second quarter last year we were in a deflationary environment, while prices were collapsing as we went into COVID. We were concerned about whether we were going to be shut down for exceptionally long and how long was this going to last?

Remember the fear of a year ago?

We were in a deflationary cycle in the second quarter last year. As a result, the year-over-year numbers look accelerated to the upside now.

Assessing GDP Movement for Inflation

Second of all, groups that produce materials, especially natural ones like lumber, things like raw materials - those organizations have been doing this for 150 years and they know when a crisis occurs.

The GDP drops, and it usually takes three to five years for GDP and economic demand to get back to where it was pre-crisis. We are doing that in a year.

It looks like in the Q2 2021 numbers, GDP is actually going to be at an all time high and so we've responded in a true V-shaped recovery economically.

That's why the stock market's recovered the way it has but it takes commodities much longer to bring their normal conditions back online. Typically, they don't expect the need to bring it back to full production until three to five years, but we need that production right now.

That's creating some of the inflation that's reflected in the slowness of the supply chain.

The Role of Government Intervention

Then we have the government who is still paying people to stay home. Effectively, we have nine-and-a-half million unfilled jobs in this country and companies are starving for workers.

We are excited to see these numbers probably start to mitigate in the second half of the year. We think they'll probably peak in the summer months then correct. The year-over-year numbers won't be so exacerbated by the second half of the year.

Side note, if you know anybody down the Jersey shore that needs a job, have them reach out to me. We have four boardwalk locations that all need additional staff this summer.

As always, here at Vizionary Wealth Management, we're always here with perspective for the decisions ahead. Please don't hesitate to reach out anytime. Have a great week.