On Inflation PossibilitySubmitted by Destination Wealth Management on October 5th, 2018
The Federal Reserve continues to move towards increasing interest rates. The pace of the rate increase will be wholly dependent on the pace of inflation. As it stands now, inflation seems somewhat muted though there are signs that it may be picking up.
One factor that is significant in the inflation picture is the price of energy. Oil has been rallying lately on expectations for stronger global growth and that has resulted in higher energy costs for companies as well as higher gas prices for consumers.
Projecting the future level of inflation and interest rates is part of the economic analysis that we engage in on a regular basis at Destination Wealth Management. Economic analysis depends on assessing current information, while at the same time making judgements about what future data will look like. We watch carefully these inputs as we make investment decisions and determine our view on the economy and markets.
A recent article on CNBC.com highlighted the recent spike in gas prices.
Gas prices are rising nationally because strengthening global economies and international politics have boosted oil prices.
"It's been about demand growth worldwide," said Tom Kloza, global head of energy analysis for OPIS. And when it comes to sanctions on Iran, a major oil producer, "there's no shortage of scary comments" that inject fear into the market and drive up prices further.
We will continue to monitor inflation related data. At present we see inflation spikes as a relatively low probability outcome, but that perspective can change based on new data. Inflation impacts interest rate levels and interest rate levels impact economic activity and markets. We will keep a close eye on inflation data and other relevant inputs to interest rate levels.
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