Inflation can be devastating…
It can spin a functional economy into disorder. Imagine a loaf of bread costing $2 today… and $3 tomorrow… and $5 the day after.
That’s reality when hyperinflation takes hold. Heck, in the past year, inflation is up around 25,000% in Venezuela.
The fear of hyperinflation has spooked many folks into believing any inflation is bad. And that makes today scary, because U.S. inflation just hit its highest level in six years.
The regular worry is that rising prices could hurt household spending and put a stranglehold on the economy.
It’s a legitimate fear… But today’s “high” inflation isn’t something to worry about. And it certainly won’t end the U.S. bull market.
Let me explain…
The U.S. inflation rate jumped to 2.8% in May. That’s the highest level we’ve seen since 2012.
The story made headlines in recent weeks. It has plenty of folks scared. They worry that rising inflation could choke the economy and hurt stock prices.
Again, it’s a legitimate fear of truly high inflation. But in this case, you should avoid getting caught up in the headlines. It’s better to tune out the “noise” and look at the bigger picture.
A six-year high in inflation sounds scary… But it doesn’t tell the full story. The simple fact is that today’s “high inflation” isn’t that high at all.
Since 1990, the average inflation rate has been 2.5%. And that means the recent high of 2.8% just isn’t that extreme. Take a look…
As you can see, the current inflation rate is barely above its historical average. In the early 2000s, it was around 4%. And in 2008, it was roughly double today’s rate.
Is 2.8% inflation going to crash the economy? Is this six-year high the reason the bull market will end? I seriously doubt it.
Sure, high inflation could be a concern. It could become a headwind for the economy in the future. But this isn’t anywhere close to high inflation… let alone hyperinflation.
Next time you see a headline about rising inflation, remember, it’s nothing to lose sleep over. We’re at six-year highs… But that has just gotten us back to “normal” levels.
For now, the pieces are in place for the current bull market in U.S. stocks to continue. It won’t last forever, of course. And if inflation hits 4% or 5%, then it’s worth another look. But 2.8% inflation won’t cause the next crash.
Our best advice today is to stay long stocks.
Good investing,
Brett Eversole
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Source: Daily Wealth