Alan Bergin, Fund Evaluation Group
Another quarter and another commentary on inflation. U.S. inflation, as measured by the Consumer Price Index, rose 5.0% in the 12 months ending May 31, the largest inflation increase since 2008. Digging deeper, prices for many goods saw incredible increases, including gasoline (up 56.2%) and used cars/trucks (up 29.7%). There is a clear supply and demand imbalance across many segments of our economy. Demand for goods and services has greatly increased from the very depressed levels of one year ago, but supply has not yet caught up, with many employers still operating under COVID restrictions and a workforce in which some are hesitant to return to work. Although recent inflation has been higher than recent averages, longer term inflation forecasts remain muted. The yield spread between inflation protected Treasuries and nominal Treasuries, a commonly used estimate of inflation expectations, only indicates slightly higher inflation over the next five to ten years. Should inflation remain elevated in the near term, pressure will build on the Federal Reserve to raise interest rates. For now, financial markets remain largely unconcerned with inflation and are focused on the positive economic recovery.
Alan Bergin is the Senior Vice President of Fund Evaluation Group in Dallas, TX, the Foundation’s consulting firm.