So let’s use it that way. When we talk about the high inflation we have seen recently, as we determined above, we need to look at three things: housing, transportation and food. In all three cases, we see sustained price increases. So far, so good. The numbers make sense and are consistent with our real-world experience. But when we look forward, we have to consider whether those trends will continue.
A Look At The Trends
Here, looking at history can be helpful. Looking at the trends by sector since 2000, we can see that housing for the most part has shown steady moderate increases, although it spiked a bit in 2009 and starting in 2021. Similarly, food and beverages has shown more modest increases, but here again we saw faster gains from 2021 on. Finally, transportation was largely flat from 2008 through 2020, only to spike much more sharply in 2021. In all three cases, inflation took off starting in 2021.
Given the timing, it is hard to escape the conclusion that the significant rise in inflation was due to the collision of more demand as economies reopened with the supply chain damage from the pandemic. Given that much of this comes from the pandemic, as the pandemic fades, we should also see inflation start to move back down as demand and supply chains normalize. And that was indeed what we were starting to see in many areas—but now the Ukraine war has introduced a whole new set of supply constraints.
A Move Back To Normal?
Looking back, then, the inflation we have seen so far has been largely due to the pandemic. If we could move back toward normal, it would subside. Unfortunately, it will be some time before we can do that, and inflation looks likely to continue for a while. So let’s talk tomorrow about what the inflation prospects are in the future.
Brad McMillan is the chief investment officer at Commonwealth Financial Network.