Markets up this morning after a “”scary”” 1.2% correction. I think I would classify that as shallow. This week we got a very hot read on CPI and PPI, which is the consumer and producer prices report. That report told us that there are clearly higher prices. At the same time, wages are also higher. So is that inflation? Here is the definition of inflation according to Investopedia.
“Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time. The rise in the general level of prices often expressed as a percentage means that a unit of currency effectively buys less than it did in prior periods.”
So if wages are going up and the price of goods and services are also going up, doesn’t that cancel each other out? Probably not since prices are going up faster than wages are. Maybe a bit simplistic but what is real is that many businesses have been able to pass on the higher costs that they are paying to consumers.
Powell is sticking to his script in that all of this inflation is transitory and it will all normalize when workers go back to work and supply disruptions are fixed. Is Powell wrong? Is the bond market wrong? Nobody knows but this is the current wall of worry and we will find out in about a year from now. The other thing to worry about is that earnings may have peaked and if that’s the case, the market will most likely tread water and that’s okay with me since most of my income comes from income-producing strategies that I use.
What is your edge?
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