Finance expert expects inflation to continue rising

As the price of food, gas and housing continues to soar, the country’s inflation rate set another new 40-year record at 7.9%, and the Tampa Bay metro area continues to pace the nation with a nearly 10% increase in costs over the last year.

The latest report, released by the Labor Department on March 10, reflected cost increases from February 2021 through the end of last month. While the energy sector increased by nearly 26% – led by the cost of gasoline rising 38% – the numbers do not include the latest oil and gas surges that followed Russia’s invasion of Ukraine on Feb. 24. The report showed that the cost of meat, poultry and eggs increased by 13% nationwide, and the price of used vehicles jumped 41% in the last 12 months.

In November, the Catalyst spoke to Dr. Huijian Dong, then the academic coordinator of the University of South Florida’s Kate Tiedmann School of Business and director of the Merrill Lynch Wealth Management Center, for his perspective on rising inflation before the holiday season. At that time, inflation reached its highest level since the 1990s at 6.2%, and Tampa Bay was slightly below the national average at 6.1%.

Dong, now the associate dean for the New Jersey City University School of Business, is a Chartered Alternative Investment Analyst and a Chartered Financial Analyst. Numerous finance, wealth, economics and business journals have also published his research. He received his Ph.D. in economics with a concentration in finance from the University of Delaware.

Here is his fresh insight into a problem he correctly predicted – in November – would worsen before it got better.

Dong credited persisting problems with the global supply chain, soaring energy costs and the continued power of expectation – one of the key factors he listed in November – as the main forces pushing inflation higher.

“That is when people expect things would be more expensive, people start to buy things that they don’t necessarily need to use right at that moment,” he said. “But with the anticipation of a higher future price, they rush to buy that stuff, and that increases the price.”

Dong believes an unevenly distributed business ecosystem is to blame for the problem growing exponentially throughout Tampa Bay. He said the local economy – skewed heavily towards entertainment, hospitality and light manufacturing – is more cost and price-sensitive than other areas of the country.

Dong said he expected pandemic-related momentum, along with the Federal Reserve’s monetary policy, to continue driving inflation last year. He was correct on both fronts. Many economists, Dong included, predict the Fed will begin a series of interest rate hikes in the coming days. It would mark the first time the central bank raised rates in three years, although Dong warned that any policy change would take time to affect the market.

Dong also cautioned that if the Fed increases interest rates without decreasing the money supply, the policy change will have little effect on inflation. Since the pandemic took hold, the bank has repeatedly injected more cash into the market, helping the economy grow at its fastest pace in 37 years in 2021.

“There is still a lot of capital in the market, to begin with,” said Dong. “So, even though the cost of capital would be higher, it is not strong enough to suppress inflation.

“Far from enough.”

Dong explained that the Russian invasion of Ukraine influenced inflation from multiple perspectives, and even goods and services unrelated to the two countries are affected. Uncertainty in international logistics and supply chain management pushes prices higher, he said, while increased volatility wreaks havoc on financial markets.

Dong said daily stock market volatility has nearly doubled in the last three weeks. He added that even experienced traders have no idea how the market will change from morning to afternoon.

“Because news keeps on arriving to the market with different directions,” he said. “And it affects investor sentiment in a very disorganized manner.”

In addition to the Fed increasing interest rates and reducing liquidity, Dong said better communication by the central bank would also go a long way to improving inflation rates. He said a clear expectation of what is to come would help manufacturers and the service industry realize the cost of capital and create better business development plans.

Dong said more people returning to work would also help the problem, and the Bureau of Labor Statistics showed that job openings outnumbered available workers by nearly five million in January. For people that are back to work and feverishly trying to stay afloat amid the highest inflation rate in 40 years, Dong said it is important to stick to a strict budget and eliminate unnecessary expenditures.

“People will have to weigh their priorities,” he said. “And people should not move forward with big products or a luxury lifestyle, and need to really measure the demand side before they sign their checks.”