Deflating Inflation
For the last few months, the main economic worry rocking the stock market has been inflation. Inflation is an increase in the price level of an economy, which ends up devaluing the currency and decreasing purchasing power. This occurred during the COVID-19 economic recovery for many reasons, but we’ll single it to 2. First is the increased amount of money in the financial system, which was necessary to stimulate the economy and boost a recovery. This is a major cause of inflation because it devalues the dollar, which makes companies raise their prices. Second is the supply chain issues. Due to COVID-19, companies lacked the ability to receive imported goods smoothly, and when you mix that with the heavy amount of dollars, you receive high inflation.
On Wednesday, the U.S. Labor Department released the Consumer Price Index report for July, and things weren’t as bad as expected. The CPI rose by 5.4 percent, which matched the previous month but also fell short of expectations. Core inflation, a metric that excludes food and energy due to their volatile swings, rose by 0.3 percent, which ended up falling short of the expected number. In an earnings report, falling short of the expectation isn’t a good thing, but here, it marks a turning point in the battle with inflation. This is the first time in a while that inflation has slowed down, posing less of a threat to the economy. The report further proves that inflation has been transitory so far, though things could always change. What do you think about the inflation report?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
