Inflation Unleashed

By John Stewart, chief investment officer at Farmers Trust Co.
Inflation is running hot, hot, hot!

The Consumer Price Index of inflation, or CPI, was reported earlier this week to have risen 0.83% month-over-month in April, which is more than 10% at an annual rate. That’s the highest monthly reading since 1982!

The reading for May will likely be even higher given the recent acceleration in commodities prices across the board, including spiking gasoline prices due in part to the Colonial pipeline cyberattack and shutdown that most of you likely heard about in the news this past week.

The question now becomes whether the Federal Reserve will acknowledge this inflation as something that may need to be addressed with tighter monetary policy, or whether they will continue to view this environment as “transitory” and risk letting this fire burn out of control.

Featured Insight: Don’t Chase Headlines

Talking Points:
• While it may seem ironic advice after I just discussed headlines regarding inflation reports, once a news story has been broadly disseminated, the ability to make money off of it – at least in the short-run – has likely passed you by

• Ever heard the phrase “Buy the rumor, sell the news”? This essentially means you want to invest ahead of an anticipated event, and then take your profits once the event itself actually occurs

• We’ve been encouraging investors to own assets that benefit from inflationary pressures for over a year now, and now that inflation has become one of the top new stories in the mainstream media, it may make sense to take at least SOME profits on those positions

Looking Ahead:  Expect a Summer of Volatility

Talking Points:
• It may be wishful thinking on my part to start talking about summer – as we’ve had one of the coolest starts to the month of May in Northeast Ohio in recent memory – but we know the weather will warm up eventually

• What we also expect to heat up – in addition to the inflationary pressures I’ve talked about of course – is more volatility in the financial markets

• An over-stimulated economy, high stock valuations, higher interest rates, higher gas prices, geopolitical risks building in the Middle East, Russia, and China, and the potential for more social unrest all add up to what will likely be elevated volatility in markets in the coming months – Buckle Up!

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