My last two blog posts dealt with “risk” and justifiably so given the collective psyche we all face. Of all the risks, perhaps inflation is the most concerning.
“U.S. Inflation hit 7% in December, fastest pace since 1982” (Wall St. Journal, Jan. 12, 2022) and “Red-hot Inflation Data Headlines Volatile Week for Wall Street” (NASDAQ, Feb. 11, 2022) are two recent headlines prompting fear in the capital markets and on Main Street!
But, alternate views are starting to show up! The New York Times, perhaps with a clearer head, reported that possibly a “duller” and more reasonable headline could read “Inflation Remained Stable, Well below its October Peak” in “Inflation May Have Already Peaked. The Fed Needs to Step Gingerly.” (New York Times, Feb. 11, 2022). This is due to the fact that the monthly rate was up only 0.6% in January and over each of the past few months, down from the recent high 0.9% monthly rate in October 2021.
As shown in the table below, over the past 9 years prior to 2021, inflation was quite subdued with an average inflation rate of only 1.6%. Including the large 7.1% inflation rate in 2021, the 10-year average inflation rate is still only 2.12%; a number that is quite benign and at the Fed long term target.
None of this is to imply we have nothing to fear from inflation since we all see it in food, energy and almost everything we buy every day and large inflation is disruptive to a normal functioning economy. The supply chain problems due to the pandemic and the huge Fed and fiscal stimulus have been well-documented triggers to the current heightened inflation. Going forward, we are hopeful that market forces can help solve the supply chain issues and the Fed can ease slowly to a more “normal” interest rate environment with a complementary dose of fiscal restraint.
In the meantime, there is no benefit trying to time the market! As I ALWAYS say, best to ensure that your investment strategy is consistent with your risk tolerance and matched to your objectives to help you achieve your goals.