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While the Consumer Price Index is nearly certain to rise further in the near-term, the surge should be short lived. 

 

 Near term increase in inflation may be inevitable

In the midst of the widespread economic shutdowns that sent the economy into recession last year, consumer prices fell notably in early 2020 in tandem with collapsing consumer demand for many non-essential products. However, since falling to near zero last May, the Consumer Price Index (CPI) has edged higher. Fiscal stimulus has caused federal deficits to balloon over that period, raising concerns for many investors about the risk of inflation continuing to rise toward levels not seen in many years.  How great is that risk?

Inflation is expected to continue to edge higher in the coming months. With vaccine distribution progressing, the economy is expected to continue to reopen across the country. As consumers return to more normal spending patterns, rising demand may provide a lift to prices, particularly for goods or services for which supply might be slower to adjust. That demand growth could be further amplified by a third round of stimulus checks expected in the months ahead for a brief period.

Even if prices are relatively stable in the coming months, the nature of the calculation itself means that the CPI will continue to rise. As the disinflationary months of April and May 2020 fall out of the 12-month calculation, they will almost certainly be replaced with increasing prices this year. Even if actual prices are unchanged over the next few months, the CPI will almost certainly rise above 2.0% for a brief period.  Modest increases in prices could push the CPI above 3.0% briefly.  However, such an increase is expected to be temporary, and consumer price inflation is still expected to recede in the latter half of the year.  In our accompanying piece, we discuss the outlook for the next few years.

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

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