from Economics Help
What Investors Should Know About Investing During Rising Inflation
by Chris Gunster
Forbes
Increasing inflation fears remain the primary concern weighing on financial markets. The U.S. economy is still digesting the pandemic-induced inflation spike while concerns over the Trump administration’s fiscal policies and potential increases in government debt are stoking new inflation fears and driving market volatility.
Investing during periods of high inflation is difficult. Successful investors need to pay attention to the most recent economic data, the drivers of current inflation and what markets are saying. From that, investors can derive an investment strategy tailored to the current situation—because similar inflationary periods from the past may not have produced the same outcomes.
The Fed and Inflation: What’s Next?
Wharton’s Nikolai Roussanov and Peter Conti-Brown unpack inflation trends and the lessons from previous Federal Reserve actions.
by Shankar Parameshwaran
Knowledge at Wharton
The higher-than-expected January indices for consumer prices and producer prices have reignited the debate on the Federal Reserve’s options to achieve price stability without hurting employment. Two Wharton experts delved into those issues on the Wharton Business Daily podcast (listen here): Nikolai Roussanov, finance professor, broke down the latest inflation trends. Peter Conti-Brown, professor of legal studies and business ethics, identified lessons from the Fed’s actions in previous episodes of high inflation.
Nikolai Roussanov on Inflation and the Fed’s Options
Immediate rate hike unlikely: The Fed may not raise interest rates unless inflation worsens alarmingly. The markets had reacted to the latest CPI (Consumer Price Index) data with the expectation that the Fed will pause rate cuts for even longer than perhaps was anticipated. However, they seem to be shrugging off the PPI (Producer Price Index) reading of 3.5% year-on-year.
The Road to 2% Inflation: Are We There Yet?
by Fernando M. Martin
St. Louis Fed
Five years after the start of the COVID-19 pandemic, prices are 10% above their prepandemic trend. Inflation peaked in mid-2022 and has since declined sharply, though progress towards the Federal Reserve’s 2% target may have stalled recently. This inflation episode was and remains broad-based, with most product categories still experiencing higher inflation than before the pandemic. In this blog post, I will provide an account of the inflation surge, the road back to 2%, and where we are today according to the latest data available.
The Recent Path of Inflation
The first figure plots the monthly evolution of the personal consumption expenditures (PCE) price index from January 2016 to December 2024, along with a line indicating its prepandemic (2016-19) trend. Before the onset of the pandemic, prices were growing at a steady rate of 1.7% annually, which was slightly below the Federal Reserve’s 2% target.
Powell’s Revisionist History of Inflation Targeting
Inflation wasn’t transitory, and neither is the blame for it. Powell’s attempt to rewrite history just doesn’t match the data.
by Bryan Cutsinger
The Daily Economy
At a recent press conference, Federal Reserve Chair Jerome Powell claimed that the Fed’s flexible average inflation targeting (FAIT) framework did not contribute to the post-pandemic inflation surge.
There was nothing moderate about the overshoot. It was — it was an exogenous event. It was the pandemic and it happened and, you know, our framework permitted us to act quite vigorously. And we did once we decided that that’s what we should do. The framework had really nothing to do with the decision to — we looked at the inflation as — as transitory and — right up to the point where the data turned against that. — and when the data turned against that in late ‘21, we changed our — our view and we raised rates a lot. And here we are at 4.1 percent unemployment and inflation way down. But the framework was — was more — was more irrelevant than anything else that — the that part of it — that part of it was irrelevant. The rest of the framework worked just fine as — as we used it — as it supported what we did to bring inflation down.
The temporary rise in inflation and permanent rise in the price level was, according to Powell, beyond the Fed’s control. The Fed’s framework did not inhibit the Fed’s response. To the contrary, Powell said, the framework supported the Fed’s efforts to rein in inflation.
What Would Trump Have to Do to Defeat Inflation? Maybe Nothing.
President Donald Trump promised to “end inflation” and “immediately bring prices down” during his election campaign, but that hasn’t happened yet.
by Diccon Hyatt
Investopedia
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The public is showing signs of impatience for President Donald Trump to fulfill his campaign promises to solve inflation, but it might be on its way down all on its own.
A CNN poll last week showed 62% of U.S. adults believe President Donald Trump has not gone far enough to reduce the price of everyday goods. Inflation heated up unexpectedly in January, rising to a 3% year-over-year increase (compared to around 2% a year before the pandemic).
Trump, who won in the November elections on a wave of voter anger about inflation, pledged to “immediately bring prices down” and “end inflation” on day one of his presidency.
Ahead of Nvidia Earnings, Stocks Slide as Investors Eye Inflation Data
Stocks Declined Sharply As Investors Await Key Economic And Earnings Reports
by JJ Kinahan
Forbes
Stocks fell sharply on Friday and all the major indices ended the week lower. The S&P 500 lost 1.5% for the week. The Nasdaq Composite dropped 2.5%. Small caps were hit hardest, dropping 2.5%, while the Dow Jones Industrial Average fell 2.5%. While last week lacked any significant economic data or earnings news, this week has several items of note.
On the economic calendar, tomorrow, the Conference Board will release its latest read on Consumer Confidence. The Durable Goods report for January comes out Thursday. However, the most important report of the week and the Federal Reserve’s preferred gauge on inflation, Personal Consumption Expenditures , is due out Friday morning. Heading into the week, there is a better than 97% chance the Fed will leave interest rates unchanged when they meet in March, according to the CME FedWatch Tool. As of now, the earliest point at which we may see a rate cut is not until June. I’ll be watching to see if these numbers change at all by the time the week ends.
Fed Expected to Respond Strongly to Inflation, Job Market Conditions, Research Shows
by Reuters
Yahoo! Finance
The Fed’s perceived responsiveness to economic data picked up notably in 2022, driven first by inflation data and, last year, by labor market data, based on the analysis of perceptions embedded in professional forecasts and in bond market moves published in the regional Fed bank’s latest Economic Letter.
The findings are in line with the Fed’s actual response to inflation, which rose in 2021 but did not trigger any interest rate hikes until 2022.
What’s the Relationship Between Commodity Prices and Inflation?
Data suggests commodity prices have a relatively high positive correlation to the Personal Consumption Expenditures (PCE) price index.
by Dr. Mark Shore
Institutional Investor
As commodity prices fluctuate in response to supply and demand, and inflation continues to rise, a key question arises: How closely do commodity prices track inflation indicators?
[…] Since the financial crisis, core inflation remained stable around the PCE’s 2% target until April 2021 when inflation surged globally due to pandemic-related supply chain disruptions and changing consumption patterns. By summer and fall 2022, inflation peaked between 5.6% and 9.1%, depending on the index. Inflation began to decline, reaching a temporary low in late 2024.
[…] The Bloomberg Commodity Index (BCOM) hit its lowest point in March and April 2020, rebounded to pre-pandemic levels by January 2021 and peaked in June 2022. BCOM then declined by about 32%, hitting a recent low in September 2024, returning to August 2021 levels.
E.U. Inflation Ticks Upward in January
The European Central Bank warned inflation rates may be sporadic before reaching a 2% annual goal in 2025.
by Gabriel Tynes
Courthouse News
(CN) — Annual inflation in the eurozone and European Union is drifting away from a 2% goal established by the European Central Bank in 2024. According to a report released Monday by Eurostat, the annual inflation rate climbed to 2.5% in the eurozone in January and 2.8% in the broader European Union.
The rates have been climbing since they dipped to three-year lows in September 2024. At the time, ECB President Christine Lagarde predicted the rates would climb again for several months before reaching the bank’s 2% medium-term target in 2025.
The highest rates in January were recorded in Hungary (5.7%), Romania (5.3%), and Croatia (5%), while the lowest rates were recorded in Denmark (1.4%) and Ireland, Italy, and Finland, all of which saw 1.7% annual inflation.
Is the Federal Reserve’s Preferred Measure of Inflation Set to Fall?
Market Questions is the FT’s guide to the week ahead
by Jennifer Hughes, Arjun Neil Alim, and Ian Smith
FT
Core inflation, as measured by the consumer price index, rose to 3.3 per cent in January on a year earlier, above expectations of a 3.1 per cent rate, leading investors to scale back their bets on interest rate cuts this year. A sharp rise in the cost of eggs, as farmers fight an outbreak of avian flu, was a big driver of the surprise reading.
But while the personal consumption expenditures index, which uses a different methodology, is expected to show prices rising 0.3 per cent month-on-month, up from a rate of 0.2 per cent, according to a poll by Reuters, the annual rate is expected to fall to 2.6 per cent from 2.8 per cent.