A Revisit of The Weekly Update for 10/29/2021
It has now been almost 2 years that we have been discussing inflation and its upward trajectory since the pandemic started.
The piece I wrote and posted as the weekly update for 10/29/2021 is becoming more prophetic by the day. (Read it here)
Since that was written, the household inflation rate as measured by the Consumer Price Index (CPI) has increased to 7.5%. (SOURCE: Consumer Price Index Bureau of Labor Statistics 2/10/2022) The inflation that measures inputs into manufacturing products is measured by the Producer Price Index (PPI), which came in worse than expected, up + 9.7% (SOURCE: Producer Price Index 2/15/2022), in the most recent release. It is reasonable to expect these input costs will continue upward. In particular, the Consumer Price Index is likely to go higher as the cost of housing has increased and gasoline prices are still going higher.
Trillions of dollars were injected into the economy during the pandemic. In addition, interest rates have been kept artificially low to induce borrowing and investing for economic expansion. As I wrote about in the prior Weekly Updates along the way, to get a head of “The Real Return Illusion™” the Federal Reserve of the United States must start to increase interest-rates quickly and likely more than many people are currently expecting.
Most financial models rely on interest rates to discount a business’ future cash flow. As interest rates increase those models are likely to be adjusted. That simply means assets will be sold to reduce debt outstanding and to reduce risk in the portfolios.
It is likely this de-leveraging will continue to add volatility to the markets as we move into November 8, 2022, and the midterm elections. During the summer volatility I intend to look for long-term values that we can keep investing in as I do continue to believe 2022 is our volatile transition year as we transition into what could be a wonderful 2023 and beyond.
I’m interested in your thoughts, comments and observations. Feel welcome to call email or stop by the office and say Hi.
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.