As an investor, you likely have a few finance apps downloaded on your phone. Maybe you have CNBC’s app, or Bloomberg, or The Wall Street Journal. Perhaps you have all three, and then some.
Each of these apps sends you push notifications; and yesterday, they sent you dozens of push notifications about the red-hot December inflation print.
Here’s CNBC’s push notification:
“Inflation rises 7% over the past year to the highest level since 1982.”
“U.S. inflation in 2021 was the highest since 1982, with December consumer prices up 7% from a year earlier.”
“Consumer prices rose 7% annually, the fastest rate in nearly four decades for the second consecutive month.”
After reading those headlines, how could you not be scared?
Inflation is a terrifying proposition for investors. It hurts the stock market and the economy, all while diluting the buying power of consumers. Which is why America’s most important financial media firms are telling you inflation is running as hot as ever in your lifetime.
But that’s only half the story… and those financial media firms don’t want to tell you the other half of the story because it makes today’s inflation problem seem very manageable.
Why? At the end of the day, fear sells – so they’re going to stick with the story that generates the most fear.
Unfortunately, this story is not the true story. So let’s get into the truth of the matter here…
Inflation ran superhot in 2021 for three reasons.
One, consumer spending surged last year – a byproduct of pent-up demand from 2020 and the fact that consumers saved a lot of money during the height of the pandemic.
Two, supply chain disruptions soared last year – a byproduct of countries instituting strict Covid-related social distancing and quarantine policies that hampered production capacity in factories.
Three, inflation was lapping against some really easy comps – a byproduct of the reality that in 2020, the U.S. economy shut down for several months, creating an environment wherein the CPI inflation rate didn’t break 1.5% after March 2020.
All three of those dynamics are going to reverse course in 2022, and as they do, inflation will rapidly decelerate this year.
For starters, consumer spending is going to fall flat in 2022. All that pent-up demand from the pandemic has been largely exhausted, and with it, households have spent all their money. The household savings rate across the U.S. soared above 10% throughout all of 2020, giving consumers ample spending firepower in 2021. But exiting 2021, the personal savings rate dropped to its lowest level since 2017.
Basically, consumers were “cash rich” in 2021, and now they’re “cash broke.” Couple this lack of resources with a lack of desire to do things relative to 2021, and you get a recipe for slow consumer spending in 2022.
More than that, supply chains will get fully restored in 2022. The scientific community broadly believes the super contagious, relatively mild attributes of omicron are significant toward Covid-19 shifting from a pandemic an endemic. Accordingly, countries across the globe are shifting their policies from “no-Covid” to “Covid-safe” – which translates into less social-distancing and quarantine measures.
As those measures are increasingly removed from global policy over the next 12 months, factories will increasingly boost their production capacity back to pre-pandemic levels, and supply chain logistics will improve.
Indeed, this is already happening. According to the New York Fed’s newly launched Global Supply Chain Pressures Index, supply chain pressures remain elevated today but are moderating. We fully expect this moderation to persist.
And, lastly, the comparisons go from really easy in 2021 to really hard in 2022. That is, while CPI inflation rates never broke above 1.5% from April 2020 to December 2020, they never broke below 5% from May 2021 to December 2021.
It’s easy to put up 5%-plus inflation numbers when lapping against 1.5% inflation rates. It’s much harder to do so when lapping against 5%-plus inflation rates. Indeed, if the “two-year-stack” inflation rate from last month of 8.4% holds, then the inflation rate by this time next year could be… wait for it… 1.4%.
So, while inflation is running at decade-highs right now, what they’re not telling you is that things are going to get better – a whole lot better – over the next 12 months.
That has hugely positive implications for the stock market. Less inflation presumably mean higher stock prices.
That’s especially true for one group of stocks that we believe will yield multiple 100%-plus winners in 2022: tech stocks.
To find out why we think this year could be the best year of the 2000s for tech stocks – and to find out how to position yourself for triple-digit returns as inflation cools in 2022 – click here.
I’ll even tell you about the no. 1 way to play the slowdown in inflation in 2022.
It’s an early stage, hypergrowth tech stock with enormous upside potential – so much upside potential, in fact, that our valuation models say it could soar 20X from current levels.
All you have to do to learn about that explosive stock pick – for FREE – is click here.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.