Falling stocks, rising prices, and inflation concerns (feat. fried chicken sandwiches)

Wednesday, May 12, 2021 by Robinhood Snacks |
_The entire drive-thru just got pricier [Foodcollection via GettyImages]_

The entire drive-thru just got pricier [Foodcollection via GettyImages]

It's going Dow... and Wall Street yelled "timber" (thanks, Ke$ha). The industrials-heavy Dow index fell 1.4% yesterday, after closing last week at a record high. On Monday, the techy Nasdaq plunged 2.5%, dragging the whole market down. What's going on:

  • A widespread surge in prices is spooking investors, inspiring the "i word" (inflation). Inflation = a general rise in the price level of an economy. Inflation concerns have lingered for months, but hit the market yesterday.
  • Why investors worry: Spiking prices can decrease the purchasing power of a dollar (aka: your $1 gets you less). Investors are worried the Fed will raise interest rates sooner than expected to fend off inflation.

The entire drive-thru just got pricier... including the car. Supply chain and labor shortages are driving up prices of raw materials and consumer goods. Meanwhile, the Fed has added trillions to the money supply through stimulus packages and bond-buying sprees, adding to concerns. Some areas seeing notable spikes:

  • Raw materials and commodities like copper, steel, lumber, and corn, are hitting record prices as production quickly revs up.
  • Consumer packaged goods giants like General Mills, Kimberly Clark, and Smucker's hiked prices (on everything from diapers to peanut butter) for the first time since 2018, citing higher materials and production costs.
  • Car prices hit records thanks to the Great Chip Shortage, which is shutting down factories.
  • Poultry prices are at all-time highs, as demand for fried chicken sandwiches soars. Chicken nugget icon Tyson just warned that "substantial" inflation pressures would hurt its profit margins.

Everyone's asking: temporary or trend?... Is this a one-time price increase as the economy rebounds — or, the start of higher yearly inflation? Economists expect these rising costs are temporary. But if they become a trend, that could push the Fed to hike interest rates. Higher rates can make bonds and savings accounts more attractive than riskier assets (like stocks). They also increase the cost of borrowing, which can dampen growth. So far, the Fed has stayed committed to its low-rate policy. But investors worry rising prices could change that.