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  1. Retirement Income Channel
  2. The Pandemic Is Definitely Having an Inflation Impact
Retirement Income Channel
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The Pandemic Is Definitely Having an Inflation Impact

Todd ShriberSep 17, 2021
2021-09-17

For economists and investors, inflation remains a hot-button topic, and while the August increase in the Consumer Price Index (CPI) was more modest than expected, some market observers believe that this reading is simply the latest sign that rising prices won’t be as transitory as previously hoped.

As measured by the CPI and excluding food and energy, consumer prices were mostly tame for the decade leading up to 2021, so economists say, but this year, it’s clear that the coronavirus pandemic is stoking higher consumer prices.

“The ongoing pandemic has played a leading role in the jump in inflation as lingering COVID-induced supply chain disruptions have made it difficult to find some items while driving up consumer prices,” according to Nationwide Economics.

Making matters worse for economists — who are in the business of predictions — and perhaps investors as well is that predicting inflation increases and decreases is tricky.

“Predicting future inflation can be difficult as current readings only reflect where prices have been trending rather than where they are headed. Moreover, temporary supply or demand shocks within specific industries (I.e. – oil and gasoline) can swing inflation for periods of time,” adds Nationwide.

For consumers and investors fretting about the impact of COVID-19 as it pertains to inflation, there are some points to ponder. First, inflation is obviously a drag while it’s occurring, and these days, the transitory thesis appears to be fragile. Second, history indicates that inflation is a common response to global health crises.

“Historically, health pandemics have caused significant shocks to the U.S. economy,” notes Nationwide. “Flu pandemics in 1957 and 1968 were followed by economic downturns while the 1918 Spanish flu was extremely disruptive to the entire society at the time. The nature of a pandemic causes both a demand shock as consumers pull back on activity and a supply shock as businesses shut down or reduce operations.”

During the current pandemic, supply shortages were created during the 2020 shutdowns, but when those restrictions loosened, demand spiked, outstripping supply and leading to inflationary pressures. Fortunately, inflation won’t be permanent.

“While the pandemic remains disruptive for many parts of the global supply chain, including shipping and ground transportation, these impacts should fade in the second half of 2021 and into 2022. As such, the Federal Reserve and many economists feel that the recent rise is an example of transitory inflation,” concludes Nationwide.

For more news, information, and strategy, visit the Retirement Income Channel.

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