The Inflation Nightmare about to Hit the Stock Market
A third wave of inflation, greed-flation, is about to hit consumers. It could keep consumer inflation high and ruin the bull market in stocks. I'll show you why and how to invest. Become an investor in Let's Talk Money and earn monthly income! Be Ready June 27th https://invest.gigastarmarket.io/offe...
Although inflation has come down from surging to a 9% annual pace last year to 4.1% last month, it’s still double the Fed’s target of 2% and could be coming into a new wave of price increases. That would force the Fed to increase interest rates again, disappointing stock investors and causing the market to give up much of this year’s gains.
That’s from analysis by UBS Global Wealth Management which says US consumer price increases have been forced higher by a series of waves rather than a singular force. The inflation waves have come one after another, making it look like one continuous movement in prices. Now a third wave is coming that could surprise everyone.
The first wave of inflation was in consumer durable goods, the rapid increase in buying of long-lasting consumer products like appliances and cars during the pandemic. The second wave was supply-driven from multiple events. The pandemic broke supply chains across the world as companies struggled to get goods from factory to consumer.
The combination of these first two waves pushed prices skyward and inflation to a multi-decade high of almost 9% last year but both are largely faded by now. The price of oil has come down on fears of an economic slowdown and consumer spending is showing signs of weakness. The third wave of inflation, the one keeping inflation stubbornly high this year, is what UBS is calling greed-flation.
Greed-flation is where, after a period of inflation, companies realize that consumers have accepted price increases. Companies then justify further price increases, even as their own cost inflation is slowing, without a pushback from customers. Consumers have become desensitized to inflation and don’t realize that now the biggest factor in higher prices is companies trying to increase their margins.
We see proof of this greed-flation in a comparison of supply chain costs. Even as consumer prices have increased at a 4% pace over the last year, commodity prices have plunged 21% so far this year according to World Bank data. That drop in commodity prices should have been hugely deflationary, yet inflation continues higher. Wage costs continue to be a factor in inflation but household income hasn’t kept up with overall inflation so it’s not just wages that is driving prices.
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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through dividend stocks, investing and ways to make more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.
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