The recent inflation data has been negative, and individuals are feeling the pinch at the pump and the grocery store. Inflation has risen at a fairly fast pace, historically. Strategas Research Partners provided us with a chart, shown in this episode, that we think helps to show that even though the ride up has been painful, there’s some belief that the steeper the ride up, traditionally that means the steeper the fall down will be. You can see that inflation is very symmetrical. The chart shows inflation periods in 1951, 1974, 1990, 1970, 1980, and 2008. Where inflation rose you can see that the pitch at which it rises looks a whole lot like the pitch at which it falls. While this ride has been painful, considering how severe it’s been, history indicates that we could see a similar downslope on the other side. There are a lot of indicators that inflation peaked back in June at 9% so we could already be over the worst of it and could see some good news coming down the pipe.
Please keep in mind that we only care about politics and how it relates to the market. According to the most recent poll by PredictIt, Republicans have increased their chances of taking control of not only the House but also the Senate. What does that mean for the market? We only like to bring up politics and how it relates to the market and looking at the current polling and historical performance of the market going back to 1933, if the Republicans take control of Congress, that would be the third-best scenario for market performance. Polling can be wrong but we’re watching carefully to see how it would impact the markets.
Money supply impacts inflation and it was a big deal during covid. In 2020 and 2021, we saw a 40% increase in the money supply which led to all this inflation. On a great chart shown in this episode, you will see that CPI has a thirteen-month lag to money supply. As money supply goes up, thirteen months later inflation came up. We just had a pretty astonishing number in September where money supply decreased by 0.6%. That’s the largest decrease in money supply since 1959 and simply means that we’re not printing money right now. It’s a good sign for inflation to come down, and hopefully, it does so quickly. Money supply coming down rapidly will hopefully translate to inflation coming down in the next six months to a year.
Bobby Norman, CFP®, AIF®, CEPA®
Email Bobby Norman here
Trey Booth, CFA®, AIF®
Chief Investment Officer
Email Trey Booth here
Associate Vice President
Email Ty Miller here
Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
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