Baker Column: Inflation might be slowing down

Dr. Richard L. Baker, AIF
Executive Vice President/Wealth Advisor

Inflation; the river might have crested but it might not go back in its banks.

I still love the river that runs through my hometown before it empties into Table Rock Lake. It floods every Spring and a lot of us would go see how high it got out of the bank. The constant conversation around town was when the river would crest and start getting back to normal.

The stock market and the US economy react to several different stimuli. A significant one this year is the rising cost of everything otherwise known as inflation. We measure inflation by the Consumer Price Index (CPI).

U.S. Bureau of Labor Statistics released the latest CPI numbers on August 11th which showed the CPI had increased 0.5% in July, which was expected and was the smallest gain in five months. This shows inflation is real but might be slowing down.

According to the government, food prices rose 0.7%, the second-most since April last year. Food prices at restaurants rose 0.8%, which doesn’t sound like a lot but that was the highest increase since February 1981. Americans ate out more in July and restaurants are having to raise prices to cover the higher wages needed to get workers.

Their report said that Core CPI, which doesn’t include food and energy, only increased 0.3%, which was the lowest increase in the last four months, and lower than the economists projected. This is positive news.

Energy prices increased 1.6%. Lodging prices away from home (hotels) was up a near-record of 6.0%. Rent went up 0.2%. New vehicle prices went up 1.7% which was the second-highest since October 2009. Used vehicle prices went up but only 0.2%, much better than the 9% average increase in price each month over the last three months.

While overall inflation continues to be high it seems like the rising prices are slowing. Inflation might be peaking or cresting like I used to watch the James River do each Spring.

I feel like I come across too critical of the Federal Reserve in these articles. To clarify, I think they did a good job in the early days of the pandemic, but I think they are holding their policies too long and overcorrecting. The Fed knows its policies are causing inflation, but they say it is only temporary (“transitory.”) I think inflation will slow its pace of increase and will pull back some like we see lumber prices doing, but I don’t think there is any chance that prices will go back to what they used to be.

This latest report is positive, but I think the Federal Reserve is in denial about inflation being temporary. But like Mark Twain, another Missouri boy who knew a thing or two about rivers said, “Denial ain't just a river in Egypt.”

Have a blessed week!

All investment and financial opinions expressed are intended as educational material. Although best efforts are made to ensure the information is accurate and up-to-date, occasionally unintended errors and misprints may occur. Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., 7th Floor, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management ("PCWM") and Qualified Plan Advisors (“QPA”). Securities offered by Registered Representatives through Private Client Services, Member FINRA/SIPC. PCIA and Private Client Services are separate entities and are not affiliated. Dr. Baker has attained his D.Min., the designation for Doctor of Ministry, and his AIF®, the designation for Accredited Investment Fiduciary®.