- Core PCE (personal consumption expenditures), rose to 3.5% in the first quarter, marking its second-fastest pace of growth since 2011.
- Fed chair Jerome Powell says inflation is “transitory” and will pass once economic activity normalizes.
- We asked three experts if they stand with Powell or believe inflation might be a bigger issue.
- Sign up here for our daily newsletter, 10 Things Before the Opening Bell.
On April 29, new data showed that a key measure of inflation monitored by the Fed – core PCE (personal consumption expenditures) – rose to 3.5% from 1.7% in the first quarter, marking its second-fastest pace of growth since 2011.
Then, on May 12, the Bureau of Labor Statistics released new Consumer Price Index (CPI) data that revealed a 4.2% rise in the all price index before seasonal adjustment.
The data confirmed what many market commentators had been suggesting for some time: inflation is rising. The big question is now whether this inflationary period is “transitory” as the Federal Reserve claims, or if it is here to stay.
There are experts on both sides of the argument with strong cases.
Mohamed El-Erian, the chief economic advisor at Allianz and president of Queen’s College, Cambridge, said in an interview with CNBC at the beginning of May that he believes inflation isn’t transitory as the Fed has claimed. He pointed to rising commodity prices, comments from Warren Buffett on pricing, and rising CPI and core PCE figures as evidence for his claim.
On the other hand, Beth Ann Bovino, a chief economist for S&P Global Economics, wrote in a recent report that she believes the recent jump in inflation will be transitory.
Bovino said inflation is tied to a “base effect” from pandemic-depressed prices in 2020 and a near-term boost in prices from supply and labor bottlenecks.
With these contrasting opinions in mind, Insider reached out to a few experts to give a more complete picture of the arguments for and against “transitory” inflation.
Here’s what they had to say.
Gautam Khanna, senior portfolio manager at Insight Investment, which has $1.03 trillion in assets under management
“We agree with the Fed’s view that the current wave of inflation will be high in the near-term but ultimately transitory. It is a function of base effects (the CPI figure is being compared to a year ago – during the height of lockdowns), pent up demand and supply chain friction.”
Guatam Khanna told Insider that we are in a “deflationary regime” dominated by three primary drivers: aging demographics, technological innovation, and global trade.
According to Khanna, we will see inflation for anywhere from the next two to 18 months, but after that, deflationary pressures will return things to normal.
Khanna expects periods of volatility and potential opportunities to “buy the dips” during this period.
The senior portfolio…
Read More: Inflation is seen as the stock market’s boogeyman as the economy recovers.