From the desk of Willie Delwiche.
Key Takeaways:
- Inflation surprise points brings new pressure on portfolios tilted toward yesterday
- With bond & stock returns more likely to struggle, expand investment opportunity set
- Commodity exposure poised to do well as inflation picks up and yields rise
The headlines are filled with stories of higher prices for pretty much everything (have you tried to buy a used car recently) and our charts show widespread strength in commodities (beyond just the headline grabbing moves in lumber and copper. Still, this morning’s CPI report managed to surprise many. The headline CPI was up 0.8% in April, versus an expected increase of 0.2%, and the core CPI was up 0.9% in the month, versus an expected increase of 0.3%. That was the largest monthly increase in the core CPI since 1982. The core CPI is now up 3.0% over the past year, the largest such change since 1996. While this may be due in part to various base effects (given where prices were a year ago) and bottlenecks (supply chain disruptions), the core CPI has moved decisively above the median CPI. This suggests a distribution of price changes that is skewed toward inflation rather than dis-inflation and may indicate that the moderating inflation environment of the past 30 years may be coming to an end.
