Another sign that might be the case comes from this morning’s inflation data, the Producer Price Indices. Here, the headline number held steady at 0.2%, but the annual number dropped by much more, from 9.8% to 8.7% (a much bigger drop than the CPI). Similarly, for the core PPI, while there was a gain from 0.2% to 0.4%, the annual number was down as well, from 7.6% to 7.3%. That’s still too high, but even if that monthly 0.4% figure held, there would be a decline in inflation going forward.
As always, markets have reacted to a headline—although not about the headline number. But when you look at the details, things are not so bad. The CPI and the market reaction suggest inflation will keep rising at an accelerating rate, but not all of the data agree. Even using much of the data as it stands, it still looks likely inflation will end the year lower than it is now.
So, What Do We Do?
As investors, we do need to keep an eye on this. But, as always, that does not mean we need to panic. The Fed is raising rates to contain inflation, and there are signs that it is working. This will take time. The fact that the Fed is raising rates, while it panics the markets, is a sign that inflation will ultimately be beaten. Until then, expect more volatility, but we continue to head in the right direction.
Keep calm and carry on.
Brad McMillan is the chief investment officer at Commonwealth Financial Network.