There’s REAL & reported inflation.

2021 = Highest Inflation 

I would like to quickly follow up from my previous message regarding inflation. 

The numbers for December inflation were released, and now we have numbers for all of 2021. Inflation judged by the CPI Index rose 7% in 2021, the largest 12-month increase since the period ending June 1982. 

As previously mentioned, the method for calculating CPI today is different than it was in 1982. Using the previous method of calculation, 2021 would have been the highest CPI in history. 

Today inflation in housing costs is largely measured in the CPI using something called “owners’ equivalent rent.” I will spare you the wonky details of what it is, but say it drastically underreports housing cost increases. Owners’ equivalent rent was reported as increasing 3.8% in 2021. In 1982 the BLS was using “home prices” for that component of the CPI. Home prices rose in 2021 by more than 16%. 

If you replace “owners’ equivalent rent” with “home prices” you get an inflation rate of 10% for the 2021. 

I believe high inflation will force a rotation of leadership within capital markets.

As I write this…

US large cap stocks are -0.58% on the day.

US large cap VALUE stocks are +0.23% on the day. 

International DM large cap stocks are -0.29% on the day.

International DM large cap VALUE is +0.60% on the day. 

The shift in capital markets will not be as clean each trading day as it appears today, however I do expect it to continue to play out for the “foreseeable” future. 

Sincerely,

Wyatt Swartz

Financial Adviser, RIA
W. Swartz & Co.
(636) 667-5209 | www.wswartz.com