Inflation Isn't Coming... It's Already Here

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The wave of inflation that economists expected as a result of pandemic stimulus packages is already here.

The wave of inflation that economists expected as a result of pandemic stimulus packages is already here, according to the Wall Street Journal.

The media has constantly reported about the incoming wave of inflation, but the price of many common items is soaring. There is a massive gap between our everyday encounters as consumers and the yearly inflation rate of 1.3 percent in August. Investors have been wondering whether the economy will experience inflation or deflation in the foreseeable future.

The prices of everyday items that consumers purchase have increased drastically. In August, groceries were 4.6 percent more expensive than it was a year earlier. Food prices are extremely volatile, but an increase of that magnitude hasn't been seen in almost a decade.

Items that consumers haven't needed during the pandemic have seen a significant price reduction.

  • Suits and dresses are down 17 percent.
  • Makeup is down 3 percent.
  • Hotel rooms are down 13 percent.
  • Airline tickets are down 23 percent.

Items that consumers have needed during the pandemic have seen significant price increases.

  • Men's pajamas are up 4 percent.
  • Bikes are up 6 percent.
  • Books are up 4 percent.
  • Newspapers are up 5 percent.
  • Sewing machines and fabric are up 9 percent.
  • Cameras are up 4 percent.

The differences between the consumer-price index (CPI) and the personal-consumption-expenditures price index (PCE) has never been more clear. The CPI is commonly seen in headlines regarding inflation and determines returns on TIPS. The Fed uses the PCE.

The Federal Reserve has stated that it doesn't have plans to raise rates until the PCE inflation metric hits 2 percent. The markets are closely watching to see when the Fed will start to raise rates and combat inflation.

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Economics, Finance and Investing

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