Five days after implementing tariffs on $34 billion worth of imported Chinese goods, the Trump administration released a list of an additional $200 billion worth of Chinese imports that will be subject to a 10 percent tariff. On the day of the announcement, stocks slid, but only by about a half of a percent. By the end of the week, it seemed like investors had forgotten about the announcement and instead were focusing on corporate earnings and the strength of the economy.
In 2013, the Federal Reserve initiated a comprehensive survey, The Report on the Economic Well-Being of U.S. Households, which attempted to provide a snapshot of people’s financial lives. At that time, just five years after the 2008 financial crisis, many were still reeling. Some had lost homes, others were forced to tap savings and retirement assets, and many were still out of work and/or contending with fewer hours.
If you feel like things are more expensive, you are right. Despite a slightly weaker than expected inflation report in April, this year, prices have accelerated faster than Fed officials anticipated just a few months ago. Last week we learned that headline inflation increased to a 14-month high of 2.5 percent from a year ago in April, due in large part to rising gas prices. Excluding food and energy the core rate increased by 2.1 percent.
Worries about rising inflation have spooked stock and bond investors. As a reminder, inflation occurs when the prices of goods and services rise and as a result, every dollar you spend in the economy purchases less. The annual rate of inflation over from 1917 until 2017 has averaged just over 3 percent annually. That might not sound like much, but consider this: today you need $7,272.09 in cash to buy what $1,000 could buy in 50 years ago.