Monday Market Update – July 19th

Forefront’s Monday Market Update

2021 most popular word? Transitory

I had dinner with my parents this weekend, and my father was telling me about the cost of their rental car on a vacation they are taking in a few weeks. He kept telling me how the current state of inflation reminds him of the dark days of the 70s. It made me think, is this really comparable to that time, or has too much CNN worked my father into an irrational panic?

CPI now vs the 70s

CPI, or consumer price index, is the average cost of a basket of goods that is meant to measure inflation. One of the major changes between now and the 70s is what inputs are used when computing CPI. In the 70s one of the major inputs when calculating CPI was housing prices. We do not currently use housing prices as an input when calculating CPI.

Here is an example to show you just how big of a factor that is. In 1979, CPI rose 11.3% and part of that number was the 14% increase in home prices. In the last 12 months CPI us up 5.4% with a 23% increase in home prices that IS NOT included. If it was, our CPI would be well into double digits.

Factors for today

Before we all buy into the insane hype of inflation that we are inundated with, lets look at the goods that make up our current CPI number, and what is having the biggest impact.

At the moment the largest contributors to our high CPI number are the soaring price of used cars, hotel rooms, rental cars, and airfares. For all the talk about the price of materials, we have seen the cost of things like lumber come down exponentially over the past couple of weeks.

Indications like the falling price of lumber help the thesis that inflation will regulate once the pent-up demand from Covid lockdowns has worked itself out of the economy. To give you an idea of how much demand we have, we have seen 6 years’ worth of spending on consumer durable goods in the past 16 months. Anytime you have a spike in spending like that, the cost of goods will rise.

So What?

So how does this impact all of you?

  • Stop comparing CPI today, to the 70s. Inputs are different which means were comparing apples and oranges.
  • Inflation being driven by only a few areas, be conscious of it and plan accordingly.

Stock market calendar this week:

Thursday July 22nd:

Initial and continuing Jobless Claims @ 8:30AM

Most anticipated earnings for this week:

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