Economic Outlook – December 2021

A little late, but worth the wait, year-over-year inflation numbers for November were released on December 10 showing an inflation rate of 6.8%. The last time we saw inflation this high was in 1982. This means less than half of the people living in the U.S. today have ever seen inflation like this. Here are some key components of the inflation figures for the last 12 months:

• Food up 6.1%
• Gasoline up 58%
• Fuel oil up 59%
• Utility natural gas up 25%
• Used cars up 31%
• New cars up 11%

If you like beef, that price is up 20%. If you are substituting chicken as your go-to protein, it’s up 9%.

A long time ago, in a galaxy far, far away (when I was in grade school), one of the math teaching tools was called “Fun with Numbers.” Calculating inflation can take some odd twists and turns – and a full explanation is beyond the scope of a summary like this – but my own version of “Fun with Inflation Numbers” over the last 12 months looks like this:

• Shelter prices up 3.8%
• Transportation up 3.9%
• Medical care services up 2.1%

Let’s just say some of the calculations could use some updating.

Market reaction to the last few inflation announcements has been more muted than we expected. Perhaps this means that the market is still clinging to the idea that inflation is transitory. We get the sense that it is something more persistent, which would likely mean some uncomfortable downward periods in market movement, for both bonds and stocks, in the coming 12 months.

This is not a call to alter your investment objectives, unless your own long-term investment profile has changed. Instead, we want to give you some advance notice, so you are not caught off guard if this  happens. Yes, we would love to move our clients out of the market just before a selloff occurs – and back in when investments hit the bottom – but the odds of doing that are worse than winning the lottery. Instead, we focus on long-term goals and choose the path with the highest probability of getting there.

Thank you very much for your business, and Merry Christmas!