Chart of the week

Inflation to stick with us for a while longer?

This week’s chart looks at the makeup of inflation this year, noting it has become a stickier problem in recent months.

July 22, 2022 | 2 minute read

Sticky price items drive inflation

Source: Bureau of Labor Statistics, Federal Reserve Bank of Atlanta, as of July 14, 2022.

  • Each month’s new consumer price index (CPI) release this year has roiled markets, and June was no exception. Inflation reached a new 40-year high while pricing pressures have become increasingly broad-based across the U.S. economy.
  • As the chart shows, elevated inflation may remain with us through the coming quarters and perhaps years. Price pressures have increasingly been driven by “sticky” contributors, or those that are slower to respond to changing market conditions, such as rent and household furnishings.1
  • In the June CPI report, for example, rising shelter costs—which includes rent and owners’ equivalent rent—were responsible for 35% of the 0.7% monthly increase in core CPI.1 Household furnishings and medical costs also contributed meaningfully.
  • Amid unrelenting inflation, consumer and investor sentiment both hit multi-year lows as major market indexes have fallen in unison. The highly correlated decline has been unsurprising as inflation not only impacts stock and bond returns, but also the relationship between the two.
  • Recent inflation data have served as painful lessons that the old diversification playbook needs to be rewritten for a time when bonds no longer balance stock volatility. Within this environment, investors may be wise to turn their focus toward alternative investments and real assets that have historically proven to be solid inflation hedges, including real estate, commodities and infrastructure.

  • Bureau of Labor Stastics, Federal Reserve Bank of Atlanta, as of July 14, 2022.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Search our site