Inflation is at a record high, but that doesn't mean investors should panic. In this segment of Backstage Pass, recorded on Nov. 10, Fool contributors Rachel Warren and Taylor Carmichael discuss investing in an high-inflation environment.
Rachel Warren: The consumer price index for October came out today, and as it turns out, U.S. inflation hit a 30-year high in the month of October. The consumer price index jumped to 6.2% compared to October of last year, and that represented the highest jump in inflation in more than three decades. In addition, the core consumer price index surged 4.6% year-over-year and that represented the largest annual hike since 1991.
Food prices were also up across the-board in October, the consumer price index showed that gas prices were up nearly 60% year-over-year, and October was also the fifth month in a row that inflation surpassed 5%.
Inflation was up across all consumer categories, so the cost of steak was actually up about 24% year-over-year, furniture about 12% year-over-year, used cars interestingly enough, the cost of those was 26% year-over-year. Essentially inflation up across all categories of goods that consumers are purchasing today.
Here's my question and I want to get both of your thoughts on this. Now many experts have been saying that this inflationary environment is transitory, others seem convinced that it's here to stay for the time being.
I'm curious, do you think this levels of inflation is going anywhere in the near future, and do these numbers concern you at all, what steps are you taking, if any, to protect your portfolio in the current inflationary environment? Taylor, why don't you take this one first.
Taylor Carmichael: Thank you, Rachel. It's really interesting the whole inflation deflation thing. The Fed is kept rates very low. Rates have been really low for a long time, which has been a great environment for stocks.
In the stock market, we love low interest rates because low interest rates means people are going to be buying stocks, that's just what we do in a low interest rate environment. We've had that forever, and part of it, I think is technology creates deflation, it makes things cheaper, the internet makes things cheaper and we can't really measure that.
But I think that's one reason rates have been so low is that we haven't seen that inflation in all this time, right, so we've had low rates forever for 10 years or more, I think. But we haven't had bad inflation, so this is new, this really bad inflation.
Typically what you do when you have this level of inflation, you start making noises about raising interest rates, and when you raise interest rates, what that does is the market doesn't like it, it's never liked it, it won't like it tomorrow. Interest rates going up bad for the market, interest rates going down good for the market, we all know that's the simple macro version of it.
You can change the stocks that you buy if you think you're going to enter a different environment. It's a good question, are we entering a different environment, part of this, we're in a weird situation, we have COVID, and that's one reason the Fed is not going to raise rates anytime soon, I think because we're in this health emergency, the government's doing a lot of strange things.
We've really been flooding the market with a lot of easy money because they've been worried, so there's been a tremendous amount of easy money in the economy that creates inflation, that's what happens when you do that. They can fix it, they will have to fix it at some point, they might wait for COVID to disappear or to decline in importance.
