That put us into a deflationary position, as many prices and wages decreased, because no one knew what the next week would bring.
It was like hitting a big time ‘pause’ button on the economy. However, you must also keep in mind that 12 months ago, most of our economy was shut down, and people bought less things, traveled less, etc. “First, if you are looking at the 1-year changes in inflation, those numbers will be pretty jarring, with many metrics coming in at 5%+ over the previous 12 months. “You have to look at the whole picture,” says Mike Cocco, Equitable EQH Advisor at Equitable in Nutley, New Jersey. How might you explain this to your children or to someone consumed by anxiety regarding the headline news on inflation? As these depressed numbers from one year ago ‘roll off,’ inflation metrics will likely come down.” “One year ago, global economies were nearly fully shut down so the denominator in the calculation is arguably artificially depressed. “Much of the elevated inflation numbers are being attributed to the ‘base effect’ as inflation is commonly quoted on a year-over-year basis,” says Steven Saunders, a Director and Portfolio Advisor with Round Table Wealth Management in New York City. The expectation is that it will quickly settle into its normal, less volatile, range. If we look at the last twelve months, we’re seeing the pendulum swinging wildly between both extremes. This reason gives many people pause to say the current level of inflation will be short-lived. Add to that the pent-up demand caused by the Covid lockdowns we are seeing prices rise quickly.” “As prices work to normalize, it is causing inflationary pressure. “A large portion of what we are experiencing in inflation is due to the deflation which we saw in 2020 during the Covid shutdowns,” says Mike Windle, CEO at Custom Wealth Solutions in Plymouth, Michigan. It’s merely the coincidence of the reporting calendar. Another is a simple “Snapshot-in-Time” anomaly. This, however, isn’t the only Covid-based reason for inflation.
“The pandemic is probably just the event that exposed over a decade of underinvestment in the global commodity supply chain and the vulnerability of ‘just-in-time’ inventories to this sort of supply shock.” Micklitsch, Chief Investment Officer at Ancora in Cleveland. “It’s largely due to a perfect storm of supply chain disruption from Covid, government spending to fill the economic void and a synchronized global recovery driven by vaccine rollout and economies re-opening,” says John P. What you’re seeing is a simultaneous confluence of one-time occurrences that have both exposed economic weaknesses and created a vicious inflationary cycle. Second, with interest rates lowered to almost zero since March of 2020, these low interest rates have spurred demand in housing which is experiencing a large backlog as well as adding to inflation worries.” Our system isn’t set up for this high demand level, so that causes inflation in the short term. Now that the economy is back open, people are spending and traveling and, as such, there is a bottleneck with very high demand. “First, for the past year and a half due to Covid hardly anyone was spending money. “It won’t be quick in my opinion, it won’t be ‘V’-shaped, it will be gradual.“We are experiencing this sudden surge in inflation for two main reasons,” says Craig Kirsner, President of Stuart Estate Planning Wealth Advisors in Coconut Creek, Florida. “When the coronavirus is behind us, we can reengage fully,” Daly said, noting. “What I’m hoping in the baseline is we can come back safely, we listen to public health officials, we take it slow but gradual.if we do those things and we reenter safely, then I expect us to have positive growth in 2021,” Daly said.Īsked if it could take 10 or 12 years to repair the job market, as it did after the 2007-2009 financial crisis, she said, “I’m working night and day to ensure that doesn’t happen.”īut the economy can’t rev up too quickly, not as long as the virus is still loose, she said. San Francisco Fed President Mary Daly, who appeared on CNN an hour later, said the Fed’s unprecedented actions, along with nearly $3 trillion committed by the US Congress for rescue efforts, should help. That’s not the dominant view at the Fed, which has slashed interest rates to zero, bought trillions of dollars of bonds and extended credit to local governments and businesses in an effort to prevent financial markets from imploding and keep the economy from even worse devastation. “They’ll be back very soon, and next year we are going to have a phenomenal year,” he said. Interviewed by Fox News on Friday, US President Donald Trump said that the jobs will be back.
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