What Goes Up, Must Come Down?
June 21, 2021 | Calvin Schnure | Nareit
Prices of many goods and services rose rapidly in recent months, sparking fears of higher levels of inflation that could prompt the Federal Reserve to raise interest rates sooner and higher than previously anticipated. These concerns have been a major factor in stock market volatility in recent weeks.
Much of the overall increase in consumer prices, however, has come from just a few items, including used cars and trucks, airfares, and furniture prices. It is difficult to determine whether these large but relatively isolated price increases are a harbinger of a rise in prices that is more broadly spread across a larger part of the economy, or whether they are due to shorter-term supply disruptions that will fade as the economy reopens more completely in the months ahead.
Prices on commodity futures contracts can provide an early warning of inflation trends. Futures prices are not a perfect signal, as materials costs are only one component of final prices, but they have the advantage of being reported in real time as markets react to shifts in supply and demand.
