Inflation! Inflation! Go Away and Don’t Come Back Another Day!
Published October 2021
We are hearing from many of our clients about concerns with regards to inflation. We have created a short presentation specifically on inflation. Please let us know if you’d like a copy.
The Wall Street Journal, in a recent article on inflation, mentioned the Labor Department’s CPI measured 5.3% through August – the highest in 12 years. Some say when you remove the extreme movements in some areas, like used car prices spiking, inflation is tamer. But that isn’t comforting to those who need a used car!!! The article also discusses the various ways the Fed measures inflation, including Core CPI (excluding energy and food), sticky-price CPI, trimmed-mean CPI, and median CPI - which all add to the confusion.
What we DO know is that there is a shortage of workers. And to hire workers, you must pay more than you previously did. Add to that much higher commodity prices, and strong demand, and they will all cause things to increase in price. When you have increased pay to workers, the workers can afford to pay these higher prices, and thus inflation continues.
One of the ETF families that we use, Dimensional, produced a study that showed since 1927, median inflation has been 2.68%. We have had 47 years where inflation was above that level. During those years of higher inflation, five key areas outperformed others. They were Small Cap Value, Large Cap Value, Energy, Financial Services, and Business Equipment. We have positioned most portfolios to participate in these areas for the past year or so, but if you have concerns about your specific portfolio, please give us a call.
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