Inflation – Is It Controlling The Market?

If you follow the markets and the general economy daily. You have defiently been hearing a lot about inflation. Specifically things like…

“Prices are so much higher than they were!”
“The government can’t be printing so much money for free!”

I dont claim to be a macroeconomist, or the only person you should base your financial decisions off of. I want to shed some light on an extremely important topic along with some recent data about the current state of inflation.

The Country’s Current Bottleneck Situation

Right now a very obvious reason for inflated prices on the goods you are buying is due to supply & demand.

Wall Street Journal puplished an article recently about consumer demand being through the roof. Business’ like Apple, Dominoes, Temper Sealy, and several other restaurants are experiencing massive amounts of customer demand for their products.

This relates to the chip shortage we covered last week too.

The only issue is that supply is not meeting the demand. Supply-chain shortages are happening all over. When demand is higher than supply, guess what happens? Yep, prices go up, up, up.

Supply is short because of production cuts months back from the pandemic being rampant. And now all of a sudden people are going out a lot more, vaccines are out, warm weather is here, etc. The supply is taking longer to catch up with the demand. Partly due to unemployment being at large still (getting better, but still high). Furthermore, unemployment benfits are giving people more incentive to be jobless. The lack of employment means supply decreases.

The pandemic has shifted into phases INCREDIBLY fast. We saw the fastest market correction and recovery in recent times back in March-June 2020. Additionally, vaccine rollouts were quicker than expected, which caused people to go out quicker than expected.

When one thing moves fast (demand), another lags behind (supply). That is what is happening right now which is demand inflation.

Isn’t This Bad For The Economy?

Surprisingly, it likely is not. From a glance it may seem terrible, but think about it. People going out more, spending more, and returning to “normal” life is a good thing. It is a direct boost to GDP. The bottleneck situation is likely “transitionary inflation” Which is inflation that results from an emrging economy after a recession. It means spending is increasing at higher rates than normal due to the slight recession.

If the FED can control it and put an end to it at some point in the near future will be what most people look for. Jerome Powell, head of the FED said last week that he sees inflation, but as transitionary. He sees no need to change the current monetary stimulus of low interest rates yet.

This may be way over both of our heads. But, the main thing you need to know is the FED recognizes inflation right now, but is not worried because it won’ be long-lasting.

Is The Inflation Scare The Reason For Stocks Slipping?

I believe it is a factor here’s why. Companies reported incredible earnings the last few weeks. Multiple companies reported a significant increase in consumer demand, and anticipate higher demand for the rest of the year. Analyst’s are thinking these numbers may be inflated and cannot be sustainable for long periods of time.

“Will demand stay high with inflated prices?”
“If demand does not stay high, will the companies meet their expectations?”
“Are stock prices inflated, just like product prices?”

Questions like this are what I believe has Wall Street on edge right now.

Another important note to add is the uptick in commodity prices for April. Commodity’s often times rise with fears of inflation.

Spot Gold is up 6.5%
Spot Silver is up 11%
Spot Oil is up 11%
Copper is up 12%.

My Final Thoughts

I recently listened to a podcast with Graham Stephan and MeetKevin. 2 well known and intellegent investors. MeetKevin said some points I really like which I am about to summarize now…

Business’ want their customers to be happy and offer better prices than their competitors. Time will eventually fix the bottleneck situation. And companies will do what they have to in order to keep a high influx of customers post-pandemic.

The key thing is time. No one knows for sure what will happen, but what I see is nothing that is too out of hand.