The Consumer Price Index is a measure of inflation levels in an economy.

It is calculated by tracking the price of a basket of goods that the typical consumer buys each month, and comparing how it changes relative to a reference year. The twelve-month period from May 2021 to May 2022 saw the largest increase since December 1981, at 8.6%. When we take out food and energy
– the most volatile components by far – the number improves somewhat, to 6%. Energy costs have risen almost 35% over the last year, primarily due to the war in Ukraine. For comparison, economists agree that inflation of around 2% is ideal.

Still, forecasts for the rest of the year are much better. The Federal Reserve is fighting hard to bring inflation under control. Consumer confidence has been sinking all year as households shoulder the burden of higher prices. Business owners and investors increasingly worry that a recession is possible in the next year. The Fed is on track to curtail inflation without causing a recession, but this is an incredibly delicate process. We believe that inflation will settle at around 6.9% this year and 3.9% in 2023. Many are concerned that governments will grow impatient and enact aggressive policies that, coupled with the meticulous work that the Fed is doing, will overcorrect and send the market into a recession.

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