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Fear of Inflation is on the Rise in the US: With Good Reason

Jack Schell

Posted on May 13, 2021 19:12

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With a myriad of new data suggesting higher inflation in the US — following the recent pandemic related surge in government spending — many investors, with good reason, are beginning to fear possibly aggressive inflation is in the near future for the U.S. economy.

No, it's not just you, prices really are going up at the grocery store:

On Tuesday this week, the Dow Jones Industrial Average (the Dow) fell over 300 points, and fell another nearly 620 points, or over 1.8%, the next day, according to the Wall Street Journal. Financial commentators largely blamed this fall in the Dow and other major indices on investors rising fear of inflation, but why are more investors becoming weary of this phenomenon, and is there any concrete data showing a rise? Well, I believe there are strong signs of inflation:

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Data released just this week showed that the Non-Seasonally Adjusted Consumer Price Index (NSA CPI) — an index tracking the price of everyday consumer goods — rose a massive 4.2% in April, according to the U.S. Bureau of Labor Statistics. According to CNBC, this was the sharpest rise since September 2008, over 12 years ago. That's significant.

This comes amid an alarming rise in commodity prices, such as an over 443% increase in the price of lumber over the past year, according to charts provided by Nasdaq. Or a 10% increase for the price of used cars during April alone, the largest single month jump on record, according to CBS News citing U.S.Department of Labor statistics. A sharp increase in the price of commodities, such as these, are classic signs of inflation, as they show outpaced growth in consumer demand, spending, and thus a possibly weakening currency.

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Photo free for commercial use from pixabay.com

All of this is occurring while the Velocity of Money (M2) — a value which tracks the amount of money being spent in the US economy instead of saved — is still over 18.5% lower than its pre-COVID level in Q1 of 2020, according to charts from Federal Reserve Economic Data.

And the cherry on top? The value of the dollar on the U.S. Dollar Index (DXY) has decreased more than 8.6% since February 2020, according to charts from MarketWatch.

So what does all this mean? It means that even though many businesses are still restricted and many Americans are holding there money tight instead of spending it (compared to pre-COVID times) and yet we still have a currently booming economy in terms of goods and commodity prices, people are worried that once everything is re-opened and people are spending more money again, there will be so much cash in the economy that there could be severe inflation of the U.S. dollar.

Overall, no one should panic, but simply, as with all financial information, take the data into account and decide for themselves where they think our market is going and what kind of portfolio they want to build around that. I wish the best of luck.

Notes to all readers:

I am not a financial advisor and this is not financial advice.

All statistics for commodities or currencies were calculated using their price at the time this article was written, which may vary.

Jack Schell

Posted on May 13, 2021 19:12

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Source: Upworthy

European stocks retreated on Thursday as markets around the world were spooked by the latest U.S. inflation data.

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