November 10, 2021

US Inflation Yearly Increase at 31 Year High

October’s higher than expected reading on inflation caught many investors' attention and is sure to be the source of more market volatility going forward.
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November 10, 2021

October’s higher than expected reading on inflation caught many investors' attention and is sure to be the source of more market volatility going forward.

Of course, a key question is whether inflation will remain elevated or fall back down to pre-pandemic levels. While there are many unknowns and it's still too early to answer the question definitively, here's where Inspire's investment team is focusing its attention.

The Headline Numbers

  • Consumer prices increased 0.9% in October and are up 6.2% versus a year ago, the largest yearly increase since 1990.
  • Core CPI (which removes the volatile energy and food components) is up 4.6% versus a year ago.  
  • Monthly inflation will need to consistently fall below October levels in order to bring down yearly inflation.

Source: Bloomberg

Beneath the Headline Numbers

  • In the last 12 months, energy and food prices were up 30.0% and 5.3%, respectively.
  • Rents for actual tenants rose 0.5% in September, the fastest gain for any month in the past twenty years, and are up 0.4% in October. With the national moratorium on evictions over, we will be paying close attention to rental increases going forward as primary and owner's equivalent rent make up 30% of overall CPI and 40% of Core CPI.


  • Unemployment Rate - this continues to recover towards the low of 3.6% that we had previously reached at the end of 2019.
  • Wages - with the recent spike in unemployment, aggregate wages have remained flat up to this point, and of course, in real terms have fallen. Since wages have some catching up to do amid a tight labor market, this could continue to elevate inflation above normal levels.
Source: Bloomberg

US Money Supply & the Velocity

  • With various versions of trillion-dollar infrastructure bills working their way through Congress, some investors are growing concerned how this level of spending could impact inflation.
  • A key indicator we are watching is the velocity of money, or the number of times a unit of money turns over in a specified time period; so far, the velocity of money has fallen along with the rapid expansion of money supply.
  • Many investors were also concerned about the massive levels of Federal debt and stimulus that came as a result of the 2008-2009 financial crisis; however, because the velocity of money never picked up (for reasons we will not discuss here), inflationary concerns did not materialize.
Source: Bloomberg

The Federal Reserve (FED)

The looming question we all have is the FED's response to this latest inflation data.

The FED has two active tools in place that have been in full 'stimulus' mode up to this point. However, we are starting to see indications that they may begin to take their foot off the accelerator over the coming quarters, though still a long way from 'putting on the brakes.'

  • Asset Purchases: The FED has recently indicated tapering (reduction in bond purchases) this year.
  • Interest Rates: The market's perception of the FED's intentions has risen recently to where now multiple rate hikes are expected in 2022 and continuing into 2023 based on survey respondents.

Source: Bloomberg

Global Interest Rates

The level and shape of the yield curve can show the baseline cost of capital for various time horizons. It can also give insight into the market expectations for economic growth and inflation in the future. An upward sloping curve is constructive as it indicates a normal functioning economy.

As the curve begins to flatten or (more ominous) invert, this suggests that economic growth may be in question over this time horizon.

Both measures have different implications depending on the specific sector. For example, financials borrow short-term money through deposits and make longer-dated loans to borrowers, thus benefiting from a higher spread between those rates (steeper curve). Other sectors, such as utilities, are more concerned with the actual level of rates since they tend to have higher debt levels and cannot quickly pass those costs on to customers as rates rise. Similarly, real estate generally carries higher debt loads and thereby has increasing capital costs in a rising rate environment. However, they are more quickly able to pass these rising costs on to customers in response (raise rents). Also, from an inflation perspective, real estate companies are holding 'hard' assets that appreciate along with that inflation and thereby are not directly impacted in the same manner as other businesses.

  • Current Rate Levels: Short-term rates are constrained by the FED, but again the market seems to expect this to lift off in the coming quarters. Rates are also rising on the longer end of the curve.
  • Shape: upward sloping curve indicates either growth will continue, inflation will continue, or both, thus requiring further rate increases. (This can also be further analyzed be comparing the yield on the 10yr US Bond vs. the 2yr US Note. As you can see, the curve is flat or inverts leading up to a recession.)
Source: Bloomberg

Fiscal Stimulus

Government actions could be described as adaptive, but a more accurate description would be a game of whack-a-mole. Different winners/losers, growth/inflation, lockdowns/stimulus, etc., each becoming a new focus, and often caused by the actions taken to counter the previous issue.

Understanding which component of the economy the govt will focus on next is just as important as understanding how the market will respond under a free-functioning economy, which this is anything but.
Source: Bloomberg


Inflation is heating up for various reasons, and there are plenty of experts on both sides with ideas about how far it will rise and how long it will remain. The key metrics we are monitoring are again:

  • Inflation: up 6.2% vs. 1yr prior.
  • Employment continues to tighten, with what we expect will be further wage pressure.
  • Money velocity has fallen in step with the growth in money supply, so this in and of itself is not conclusive.
  • Monetary Policy: The FED remains very loose, though beginning to hint at a shift tighter (tapering). The market seems to be expecting rate hikes in '22.
  • Global rates are gradually rising, with most developed markets having normal (upward) sloping curves. US rates, particularly the 10yr seems to indicate that inflation will remain elevated but revert to more normal levels into 2022/23.
  • Fiscal Stimulus: continued talks about multi trillion-dollar packages coming, which depending on specifics can add significant inflationary pressure.
  • GDP in aggregate is strong, though the dispersion between sectors continues and is something we are monitoring.
As Christians, we know there is 'nothing new under the sun' (Ecclesiastes 1:9-10), but we have never seen anything quite like this in our lifetimes.

With coordinated monetary and fiscal stimulus (MP3) across developed markets, amidst strong economic growth, with a labor market that continues to tighten. We feel the risk is towards higher inflation over the coming quarters, possibly more than the market is pricing in today.

At Inspire, we believe that the most prudent approach for a long-term investor is to maintain a proper asset allocation with disciplined rebalancing. This can be achieved with an Inspire globally diversified portfolio or individually constructed utilizing our broad array of ETF's. History has proven that discipline and consistency will continue to benefit the patient investor, who is not 'driven with the wind' (James 1:6) depending on the current storm of the day.

For investors who are more short-term in nature, Inspire has several active, tactical risk management strategies that may be more appropriate. For these, we are carefully reviewing the market environment to ensure our best positioning for the coming quarters. Check with us how and we can help determine where you fit on this spectrum and how an Inspire disciplined strategy can best provide investments most appropriate for your needs; all while investing your values and giving glory to God!

Article Contributors


Darrell Jayroe, CFA, CFP, CKA, serves as Inspire’s Chief Investment Officer responsible for leading the firm’s Investment Committee, as well as serving as Lead Portfolio Manager for Inspire’s ETFs and SMA strategies. Darrell has been with the firm since 2016. Darrell received a B.A. and Masters degree from Southern Nazarene University in Bethany, Oklahoma. He is a CFA (Chartered Financial Analyst) charter holder and is a CFP® (Certified Financial Planner®) licensee. He is a member of the CFA Institute and a member and past President of the CFA Society of Oklahoma. He is also a member of Kingdom Advisors and holds the CKA® (Certified Kingdom Advisor®) designation

Tim Schwarzenberger, CFA: PORTFOLIO MANAGER

Tim Schwarzenberger, CFA is a Portfolio Manager with Inspire Investing and has over 17 years of experience. Tim previously served as the Managing Director at Christian Brothers Investment Services where he was responsible for implementing the firm’s overall investment philosophy through manager selection as well as strategy and product development.


Isaac Beckel, CFA, CAIA is a Portfolio Manager with Inspire Investing and has over 7 years of experience. Isaac previously served as the Director at Public Employees Retirement Association of New Mexico where he managed a $2.5B credit portfolio across liquid, EMD, private credit, and alternative credit.

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*Advisory Services are offered through CWM Advisors, LLC dba Inspire, a Registered Investment Adviser with the SEC. All expressions of opinion are subject to change. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Investors should talk to their financial advisor prior to making any investment decision.

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