The most recent economic release from the U.S. Bureau of Labor Statistics confirmed expectations that inflation is indeed rising. The 0.6% increase in consumer prices in March was the largest monthly increase since August 2012 and represented a 2.6% jump on a 12-month basis. The biggest gains in the Consumer Price Index (CPI) were related to energy, as gasoline spiked 9.1%, the fourth straight month of increases over 5%. This is worrisome because inflation erodes purchasing power. It makes money worth less as goods and services become more expensive.
Supply disruptions and increasing prices of commodities like copper, steel and aluminum were already apparent in producer prices and business surveys. The economic reopening in developed economies is gaining momentum. Companies are scrambling to order parts from emerging markets, mainly China, and there is congestion in shipping ports. With ships already backed up at the ports, the Suez Canal became blocked for nearly a week after a giant ship got stranded, further stressing supply chains. The increased demand for supplies is also in turn driving up shipping costs and most of all these costs will likely be passed on to consumers as companies increase the prices of their final products. With many consumers also recently receiving stimulus checks and the ensuing increase in demand for goods and services, this only added to expectations for a big jump in the prices.
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Commentaries are published by Cetera Investment Management LLC, an SEC registered adviser owned by Cetera Financial Group. Cetera Investment Management provides market perspectives, portfolio guidance, model management, and other investment advice to its affiliated broker-dealers, dually registered broker-dealers and registered investment advisers.
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