During the 12 months ending in June 2021, consumer prices shot up 5.4%, the highest inflation rate since 2008.1 The annual increase in the Consumer Price Index for All Urban Consumers (CPI-U) — often called headline inflation — was due in part to the “base effect.”
This statistical term means the 12-month comparison was based on an unusual low point for prices in the second quarter of 2020, when consumer demand and inflation dropped after the onset of the pandemic.
However, some obvious inflationary pressures entered the picture in the first half of 2021. As vaccination rates climbed, pent-up consumer demand for goods and services was unleashed, fueled by stimulus payments and healthy savings accounts built by those with little opportunity to spend their earnings. Many businesses that shut down or cut back when the economy was
closed could not ramp up quickly enough to meet surging demand. Supply-chain bottlenecks, along with higher costs for raw materials, fuel, and labor, resulted in some troubling price spikes.2
CPI-U measures the price of a fixed market basket of goods and services. As such, it is a good measure of the prices consumers pay if they buy the same items over time, but it does not reflect changes in consumer behavior and can be unduly influenced by extreme increases in one or more categories. In June 2021, for example, used-car prices increased 10.5% from the
previous month and 45.2% year-over-year, accounting for more than one-third of the increase in CPI. Core CPI, which strips out volatile food and energy prices, rose 4.5% year-over-year.3
In setting economic policy, the Federal Reserve prefers a different inflation measure called the
Personal Consumption Expenditures (PCE) Price Index, which is even broader than the CPI and adjusts for changes in consumer behavior — i.e., when consumers shift to purchase a different item because the preferred item is too expensive. More specifically, the Fed looks at core PCE, which rose 3.5% through the 12 months ending in June 2021.4
The perspective held by many economic policymakers, including Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen, was that the spring rise in inflation was due primarily to base effects and temporary supply-and-demand mismatches, so the impact would be mostly “transitory.”5 Regardless, some prices won’t fall back to their former levels once they have risen, and even short-lived bursts of inflation can be painful for consumers.
Source: U.S. Bureau of Labor Statistics, 2021 Some economists fear that inflation may last longer, with more serious consequences, and could become difficult to control. This camp believes that loose monetary policies by the central bank and trillions of dollars in government stimulus have pumped an excess supply of money into the economy. In this scenario, a booming economy and persistent and/or substantial inflation could result in a self-reinforcing
feedback loop in which businesses, faced with less competition and expecting higher costs in the future, raise their prices preemptively, prompting workers to demand higher wages.6
Until recently, inflation had consistently lagged the Fed’s 2% target, which it considers a healthy rate for a growing economy, for more than a decade. In August 2020, the Federal Open Market Committee (FOMC) announced that it would allow inflation to rise moderately above 2% for some time in order to create a 2% average rate over the longer term. This signaled that economists anticipated short-term price swings and assured investors that Fed officials would not overreact by raising interest rates before the economy has fully healed.7
In mid-June 2021, the FOMC projected core PCE inflation to be 3.0% in 2021 and 2.1% in 2022. The benchmark federal funds range was expected to remain at 0.0% to 0.25% until 2023.8 However, Fed officials have also said they are watching the data closely and could raise interest rates sooner, if needed, to cool the economy and curb inflation.
If you have questions about inflation and how it may affect your wealth, please give us a call.
Have a wonderful weekend!
Projections are based on current conditions, are subject to change, and may not come to pass.
Golf Tip of the Week
Henrik Stenson Reveals His Best Tips for Flushing Your Fairway Woods (Part 1)
I realize you probably don’t hit your 3-wood 300 yards dead straight, so using it off the tee instead of a driver might leave you farther back on a hole than you’d like. But you don’t have to sacrifice that much driving distance with a fairway wood if you make a confident swing. More important, you’ll likely play your next shot from short grass, because a 3-wood is easier to control— that’s how you avoid big numbers.
My Rules for a 3-Wood Tee Shot
- Tee the ball so its equator lines up with the middle of the clubface—no higher.
- Play the ball off your front instep, which marks the low point of the swing.
- Tilt your spine away from the target to help sweep it off the tee.
- Make a full body turn back and through.
You must get your body in a strong, coiled position at the top of the backswing to maximize distance. Practice getting fully wound from an address position by starting with the clubhead a few feet in front of where you’d normally play the ball (above, left).
From there, make a backswing from the ground up, letting the momentum from this starting position rotate your chest and swing your arms to the top. Copy this feeling when you return to hitting shots, and you’ll be in the proper spot at the top to deliver the clubhead into the back of the ball powerfully.
Tip adapted from golfdigest.comi
Recipe of the Week
Candy Corn Sugar Cookie Bars
Sugar Cookie Bars
- 1 cup (2 sticks) butter, softened
- 2 cups granulated sugar
- 4 large eggs
- 2 teaspoons vanilla extract
- 5 cups all-purpose flour
- 1 teaspoon salt
- 1/2 teaspoon baking soda
- red & yellow food coloring
- Cream Cheese Frosting
- 1/2 cup (1 stick) butter, softened
- 4 oz cream cheese, softened
- 1/2 teaspoon vanilla extract
- 1/2 teaspoon almond extract
- 4 cups powdered sugar
- 2-4 tablespoons heavy cream OR half & half
- candy corn & Halloween sprinkles
Sugar Cookie Bars
1. Heat oven to 350 degrees. Prepare a cookie sheet (12″x17″ or 13″x18″) by spraying with cooking spray.
2. In the bowl of a stand mixer, or using a handheld mixer, cream butter and sugar until light & fluffy. This will take 2-3 minutes.
3. Add eggs, one at a time, mixing after each egg. Add vanilla and mix well.
4. In a separate bowl combine flour, salt, baking soda and stir with a whisk to combine. Add to the wet mixture and mix just until combined.
5. Divide the dough in half and place each half in a bowl. In one bowl, use the yellow food coloring to color the dough yellow. The easiest way is to use a handheld mixer to combine it. Color the other half of the dough orange; 3-4 drops red dye + about 8 drops yellow dye to make orange.
6. Drop spoonfuls of the yellow dough all over the cookie sheet and then piece them together. Drop spoonfuls of the orange dough all over the yellow dough and piece together to form the 2nd layer.
7. Bake for 13-16 min, until edges are light golden brown, and the center looks puffy and slightly undercooked.
8. Cool completely before frosting.
Cream Cheese Frosting
1. In a stand mixer, or a bowl with a handheld blender, beat the butter and cream cheese until smooth and creamy. Add vanilla and almond extracts. Blend.
2. Add powdered sugar in 1-2 cup increments until combined, then add milk a little at a time and mix until smooth and spreading consistency. Spread over cooled cookie bars. Decorate with candy corn and Halloween sprinkles.
3. These can be served at room temperature or eaten cold from the fridge. As they sit at room temperature, they will soften up slightly.
Recipe adapted from togetherasfamily.comii
Health Tip of the Week
7 Signs You Might Be Sleep Deprived
Recommendation on optimal levels of sleep run the gamut. Coupled with the fact that everyone has different needs, it can be difficult to determine whether you’re getting the ideal amount of shut eye each night.
Experts recommend adults get somewhere between six and nine hours of sleep per night, though the sweet spot is typically seven or eight, says Lisa Medalie, a behavioral sleep medicine specialist at the University of Chicago and founder of DrLullaby, a sleep app for children.
Below are seven signs you could be suffering from sleep deprivation without even realizing it.
1. Daytime sleepiness.
3. Depression. Feeling blue?
4. Difficulty waking.
6. Poor concentration and memory.
7. Low tolerance for frustration.
Tip adapted from success.comiii
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1,3: U.S. Bureau of Labor Statistics, 2021
2: The Wall Street Journal, April 13, 2021
4: U.S. Bureau of Economic Analysis, 2021
5,6: Bloomberg.com, May 2, 2021
7,8: Federal reserve, 2020-2021
Securities through Triad Advisors, LLC, Member FINRA / SIPC . Advisory services through Ballentine Capital Advisors, Inc. Triad Advisors, LLC and Ballentine Capital Advisors are not affiliated entities. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
The articles and opinions expressed in this newsletter were gathered from a variety of sources but are reviewed by Ballentine Capital Advisors prior to its dissemination. All sources are believed to be reliable but do not constitute specific investment advice. In all cases, please contact your investment professional before making any investment choices.
Securities through Triad Advisors, LLC, Member FINRA/SIPC. Advisory services through Ballentine Capital Advisors, Inc. Triad Advisors and Ballentine Capital Advisors are not affiliated entities.