Hi, I'm Phil Orlando, Chief Equity Strategist at Federated Hermes.
Should investors be concerned about inflation?
We're a lot more concerned about inflation risk than the Federal Reserve. Now over the next several months, we're going to anniversary and drop off low or negative inflation readings from a year ago. March, April, May, June. So by the time we get to the summer is going to look like there is a spike in inflation. Now the Fed calls this a procedural base effect. And they're telling us to ignore it. The core inflation could hit two and a half percent over the summer. The Fed thinks it will probably plateau at that point and then grind lower back to about the 2% level. But we are seeing nominal commodity inflation spike. Over the last few year lumber prices have quadrupled, oil and copper have doubled. The key agricultural commodity prices, corn, wheat, soybeans are up 50 to 75%. And as the economy reopens companies are paying up to bring their employees back. But they're going to pass all those higher costs on the consumers in the form of higher prices, that's inflationary. So the question is, is it sticky? Now, the Fed has told us they are on hold until calendar 23. So here's the dilemma, is the inflation genie out of the bottle. And will it get a serious head start before the Federal Reserve is ready to seriously address?
Disclosure: Views are as of April 27, 2021 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Federated Advisory Services Company, 21-40240 (5/21)