Experts Don’t Want You To Worry About Inflation — Here’s Why

Crude oil prices are up.

But we shouldn’t worry about this because there’s an explanation for the increase.

As Bloomberg explained

“Total U.S. oil production has plunged by nearly a third as an unprecedented cold blast freezes well operations across the central U.S., according to traders and industry executives with direct knowledge of the operations.

Crude output has now fallen by about 3.5 million barrels a day or more nationwide, they said, asking not to be identified because the information isn’t public. Before the cold snap, the U.S. was pumping about 11 million barrels a day, according to last government data. Production in the Texas’s Permian Basin alone — America’s biggest oil field — has plummeted by as much as 65%.”

Home prices are up.


Source: Federal Reserve

Again, we shouldn’t worry about this because there’s an explanation for the increase.

Bloomberg, again, helpfully explains that home prices will likely fall soon.

“The rollout of vaccines is stoking hopes for an economic rebound that could push mortgage rates higher and erode buying power for first-time home buyers or families looking for more space. Plus, there just isn’t much to buy.

Decades of sluggish building has a left a generational shortage of inventory, while older empty nesters who might typically downsize have been wary of trying to sell suburban homes in a pandemic.

All of that is fueling a looming affordability crisis that threatens the historic housing rally.”

There are other examples. But they haven’t been showing up in the official inflation data yet. That will change in the coming months.

Inflation is calculated by comparing a price index to the index value at the same time a year ago. In early 2020, the economy shut down and many economic data series showed large declines, including inflation indexes. Last week, I warned that inflation is likely to start creeping higher by official measures as early as May. And it’s likely to rattle investors.

Fortunately, the experts will tell us not to worry! There’s an explanation for the increase! Just like we’re seeing in the responses to rising crude and housing prices.

Looking Ahead

Eventually, the explanations won’t matter because the fact will still be that prices are rising. This year, even if prices are unchanged from this point on, inflation will top 2.5% by the summer. That will be the time to worry, and possibly even panic, about interest rates and the stock market.

In the meantime, to avoid the potential downside of that event, I’m focusing on short-term trades.

For example, my recent trade recommendation in NIKE Inc. (NYSE: NKE) will be open for about four weeks and should be closed before earnings are announced.

The stock is on an Income Trader Volatility (ITV) “buy” signal (shown above), which indicates risk in the stock is low.

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