Inflation

There has been a great deal of hype around #inflation concerns as prices of food, clothes, cars, lumber and many other goods have spiked causing concern and confusion. You certainly have felt the effects of inflation if you are renovating your home, buying groceries or pumping gas into our vehicles. So, what exactly is causing a price spike on goods we use on a daily basis?

Labor Shortage

Particularly in #Canada and the #United States, we have a labor shortage where a significant number of individuals have not returned to the work force either because of emergency financial aid, assisting children with school from home, mental health issues or other reasons. When you have less people working, delays or supply chain shortages can occur which activates price pressure on consumer products.

Supply Chain Interruptions

From semiconductor “Chip” delays to the #Suez Canal blockage, the delivery of goods to #consumers and #businesses has been disrupted several times causing again, price increases. Companies, especially publicly traded companies, understand very well that supply chain shortages can happen however maintaining margins, market share and revenues remains a priority. So, if companies are delivering less products with uncertainty as the backdrop, prices will naturally trickle down to the end-user, the consumer.

Vaccine Rollout + Reduced Daily Infection Cases

More people vaccinated means less uncertainty which leads to a higher probability of restarting the world economy and world #supply chain. The release of this pent-up demand should be very interesting to see. For now, we are working towards a solution however we have not reached herd immunity yet.

Rising Interest Rates

With higher inflation upon us, countries from around the world are facing the challenge to effectively time when they should increase interest rates. If central banks increase interest rates too early and discourage borrowing, small businesses (backbone of most economies) might not have enough time to recover from the effects of the pandemic. If interest rates rise too late, inflation or the cost of goods could increase even higher. Of course, such uncertainty is pulling the stock market into a price #discovery process however I will save that explanation for tomorrow.

Summary

By understanding what is causing inflation to rise can be a great starting point to relieve yourself of #stress. The primary driver is not one event but rather a series of several situations happening within a short period of time. Inflation concerns is certainly not helping increase stock or bond prices and naturally will cause volatility either. The good news is that all these events that are causing inflation to rise can be addressed over time. In other words, nothing that I described above cannot be resolved over a short period of time.

A great example of seeing past uncertainty is how investors bought #airlines stocks during the middle of the #pandemic. There was absolutely no signals or timeframe on when travel would return back to pre-covid levels yet investors decided to buy airline stocks anyway.

By understanding what is causing inflation to rise can be a great starting point to relieve yourself of stress. The primary driver is not one event but rather a series of several situations happening within a short period of time.

There is no incentive to keep inflation high and with time this event will pass causing a potential surge in demand for stocks especially hard hit technology based companies.

So with all that being said, how do we turn this new noise into an opportunity? We either stay the course or consider increasing our ownership in high quality businesses that domicile in long term growth industries. Technology, in my opinion, is our long term growth industry.

Have a great day everyone!

Talk soon,

Michael