Increasing Demand of Energy Driving Inflation to New Highs for Over 30 Years

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Inflation is finally here, and it could be high than you expect. In May, the consumer price index (COI) came in at 5 percent year over year, the highest in over a decades.

The inflation is being fueled by the increased demand for consumer products like gasoline. In May, gasoline demand increased by 56.2 percent, and its price hit its highest this week. A barrel of West Texas Intermediate (WTI) has now reached $71, a level that has not been seen since 2018.

When you take a closer look at what is happening to the volatile energy and food prices, you will realize that the prices have surged by 3.8 percent compared to last year. That is worrying given that it is the fastest rate experienced in nearly 30 years.

In the car market, the supply of vehicles has evaporated due to the shortage of semiconductor chips. That is also pushing the prices of cars and trucks up. For instance, the prices of the Manheim Used Vehicles increased by 48 percent in May.

It is not clear how long the chip shortage will last. Goldman Sachs chief Asia economist Andrew Tilton believes that the situation will improve over time. Tilton indicates that the worst period was right now. He hopes that by the second half of the year, inflation will improve.

Policymakers and analysts have varying opinions about how the current inflation and rash will last. The Federal Reserve prefers terming it as a transitory to relieve the investors’ fears and calm the market.

Meanwhile, gold, a commodity that has historically been used to hedge inflation barely budged. Bitcoin and other digital versions of gold declined by 1.8 percent. With that in mind, gold stocks may be my favorite, and Bitcoin can still be considered.

Inflation has an impact on household wealth. John William’s of Shadow Government indicates that the actual inflation may be over 13 percent. Americans are traveling more, being the reason behind the rising fuel prices. According to the Skift website, the Americans traveling in May surpassed those who traveled in February 2020.

That does include air travel which has seen airlines becoming busy this summer season. The number of Americans traveling abroad is expected to increase as vaccination improves. European Union members such as France have already started accepting visitors from the U.S and elsewhere.

Bottom-line, travel companies have to be prepared for summer surges. The domestic and international airlines will continue to be busy. Air France for instance, plans to bring 22 aircraft out of storage to increase flights to the U.S. Canada is also resuming international flights this month.

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