This week we are revisiting the data we reported on in our May 25th commentary. The data and commentary have been updated to reflect the latest May 2021 figures. We maintain a fundamental and data driven belief that the current inflationary data remains highly transitory in nature. Seasonal factors have also attributed tremendous bias to the upside in a way that has never historically exhibited sustainability.
The topic of inflation is often one of the most misunderstood topics among investors. It can spur emotions that can often appear highly subjective and largely speculative. Part of the reason for such emotion is that investors have a direct connection to inflationary pressures in the form of grocery shopping, going to the gas station, or even booking a vacation. The second reason, however, stems from the amplified financial news coverage of inflation as a single point in time. The most recent reading of the Consumer Price Index (CPI) is magnified, and intensified, in a way that provides no long-term perspective to the prospects of inflation. It also ignores the fact that inflation is a necessary component of economic growth and innovation. One such magnified example became apparent with the April and May 2021 CPI annualized figures of 4.20% and 5%, respectively. The near term shock factor is largely apparent, yet we urge investors to remain objective and assess the data with a wider lens. For better perspective, see below for the growth of $1,000 since 2011, as compared to the observed inflation relative to the Fed’s intended 2% annual target. Also, special attention must be placed on the transitory and idiosyncratic factors that have impacted CPI in the short-term.
Updated through June 2021
Edison Byzyka, CFA – Chief Investment Officer – Credent Wealth Management
Source: Bloomberg. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Advice offered through CX Institutional, a registered investment advisor.