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This morning, Friday, June 10, 2022, the U.S. Bureau of Labor Statistics released May inflation data.  The Consumer Price Index showed a re-acceleration in inflation, disappointing investors, consumers, and others that were hoping price increases had peaked.  Prices climbed 8.6 percent in the year through May, a re-acceleration of inflation that makes it increasingly difficult for consumers to afford everyday purchases and poses a major challenge for the Federal Reserve and White House as they try to secure a strong and stable economy.

The Consumer Price Index climbed 1 percent from April — far more quickly than in the previous month — and by 0.6 percent after stripping out food and fuel prices, which can be volatile. That so-called core inflation reading matched April’s reading.  The headline inflation rate was the fastest since late 1981, as a broad array of products and services including rents, gas, used cars, and food became sharply more expensive.

Interest rates are rising too.  Central bankers, in the U.S. and around the world, are raising interest rates to make borrowing money more expensive, hoping to cool off consumer and business demand and give supply a chance to catch up, setting the stage for more moderate inflation.

Economists warn that struggling to lower inflation could be a slow and painful process.  Production and shipping snarls tied to the pandemic have shown early signs of easing but remain pronounced, keeping products like cars and trucks in short supply.  The war in Ukraine is elevating food and fuel prices, and its trajectory is unpredictable.  Yet consumer demand remains strong, buoyed by savings amassed during the pandemic and wages that are rising quickly, albeit not enough to fully offset inflation.

While many have concluded that inflation has a net negative impact on the markets, there does not appear to be a clear correlation between inflation and market returns.  Historically, periods of high inflation have seen both positive and negative stock market returns.  That’s why trying to time the market is impractical or even impossible over the long term.

Still, watching the effects of inflation and experiencing higher interest rates can be painful.  Please reach out to us with any questions or concerns.  We are here for you and feeling this with you.

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