Due to rising prices for production in key industries, inflation could be on the rise in the near future, according to a recently published article.
Bret Jensen, chief investment strategist for Simplified Asset Management, pointed to five “worrying signs” from The New York Times that he says could point to the return of inflation.
“I have come to the conclusion that is there is a worrying theme that I do not think it priced into the market yet. It is the obvious return of inflation,” he said in the article published on investing site SeekingAlpha.com.
“Given that profit margins are close to record highs for the S&P, I think inflation’s impact to these margins will result in lower operating profits than expected and this risk is not priced into the market.”
Jensen pointed to significant increases in jet fuel, performance chemicals, food prices, supply chain costs, and newsprint as being indicative of a potential problem.
“It will be interesting as we go through the rest or earnings season whether this theme accelerates, gains more visibility and starts to impact expectations going forward. Rising inflation is just one of many reasons I remain cautious on the market going into the summer months,” he wrote.
One of the most recent and dramatic examples of high inflation was in the 1970s, when the stock market lost 40% in an 18-month period. Weak economic growth resulted in rising unemployment.
“As prices for different things go up, the value of you one dollar is less, and that’s what inflation is,” said sophomore finance major Mickey Russo.
Russo pointed to Middle Eastern oil to illustrate the problem of inflation. He said that an increase in price per barrel of oil has a chain reaction.
“Companies have to pay for the gas for trucks to deliver goods. So, they lose profits from whatever they are doing. Therefore, they have to increase the price for every good they are delivering, and the average person then pays more for the goods,” he said. “All of this makes your dollar worth less.”
If inflation were to rise in the near future, it could have an impact on college students going into the workforce.
“Inflation scares a lot of people,” Russo said. “For college students coming out into the workforce, it is hard to find jobs when people are afraid to spend money.”