Heresy Financial: A Second Wave of Inflation Has Begun

The latest economic data indicates that inflation is here to stay. Rather than drop to the Federal Reserve’s 2% annual target, it’s closer to 3.5%. And it’s starting to show signs of rolling higher.

It also doesn’t help that data like retail sales show that consumers continue to spend. That’s a sign of a strong economy, not one where interest rates are leading to cooling conditions. This could also point to another inflation wave higher.

The trend looks similar to the 1970s. The early 1970s saw an inflationary surge as oil prices more than quadrupled. Inflation soared to double-digits, then declined in the mid-1970s. However, they spiked again.

For the 2020s, we started the year addressing the pandemic with considerable money printing. This took the form of direct and indirect stimulus. The massive quantities of new money flooding the economy led to inflation soaring to over 9% at its peak in June 2022.

While inflation has slowed, it’s not back to its range yet. Even after the Fed has raised interest rates to its highest level in 15 years, the economy may not have slowed enough yet.

That suggests that inflation remains sticky now. And that if the Fed cuts rates later in the year as expected, inflation may take off again.

Investors can still get inflation-beating returns in short-term bonds. Commodities will likely also fare well under inflationary conditions.

To watch the full explanation of how inflation may spike again, click here.