Deep Knowledge Investing: Ready for Un-Disinflation?
The market’s narrative this year has settled on the idea that higher interest rates will wipe out inflation. That’s largely been true. Since a peak of 9.6 percent last year, inflation has slowed to under 4 percent.
However, that’s still well over the Federal Reserve’s target of 2 percent. And the most recent inflation data shows that some prices are ticking up again. That spells a more complex outcome for investors in the coming months.
The notion has been that disinflation, or a decline in the rate of inflation, is paying off. In other words, prices aren’t declining. But they are increasing at a slower rate.
Today, investors are looking past the Federal Reserve and at the drivers of today’s inflation. One area is the energy market, where oil prices have risen back to $90.
That’s thrown a wrench in the plans of the White House, who was hoping on prices to drop under $70. That way, they could refill the Strategic Petroleum Reserve on the cheap.
Another problem is Congressional spending. The deficit will be over $2 trillion this year, a record amount for peacetime. That money hitting the economy can fuel inflation. And it isn’t even the Fed’s fault.
With little incentive for Congress to spend less, inflation may start to tick up again. This could be a form of un-disinflation, and could weigh on the economy and assets such as the stock market.