Supplier Prices Remain at Record High Levels

Posted May 19, 2022

On Thursday of this week, the U.S. Labor Department reported the Producer Price Index increased 11% in April from 1-year prior. The Producer Price Index is a broad measure of supply conditions in the economy, marking its fifth monthly consecutive gain of more than 10%. The PPI remains at stubbornly high levels, the highest since records began in 2010.

The chart below illustrates 1 year % change in PPI Final Demand of 11.3% for April 2022.

The sharp rise in PPI is being driven by ongoing global supply chain disruptions, as well as surging raw materials and commodities prices. Corporations are responding by raising prices to pass the input cost increase along to consumers to protect gross profit margins.

U.S. workers are receiving large raises this year, but it is still not enough to keep up with inflation on everything from groceries, gas, and rent. Strong wage growth is placing additional pressures on inflation since corporations are raising prices further to offset the increase in labor costs at the operating margin level.

As we have been communicating all year, the need for patience and a diversified portfolio is being highlighted in these uncertain times. However, we also believe market conditions could improve once the market becomes comfortable with the Federal Reserve’s course to tame inflation. Moreover, clarity with Ukraine and Russia would be welcomed by the market and would be expected to move the market higher. We are not out of the woods yet, and we are less bullish than we were to start the year, however, there is hope.

While we wait for market conditions to normalize, you may want to consider the following:

• Holding enough cash to make you feel comfortable
• Evaluate your investment time horizon, liquidity needs, risk tolerance, the required return on your investments, and other unique factors to your situation
• In general, update your investment policy statement if there have been material changes in your lifestyle circumstances
• Update your financial plan
• Update your risk profile
• Be patient

If there have been changes in your investment objectives and constraints, please communicate with us so we can discuss changes in your portfolio or financial plan. We have several risk-off and risk-on portfolio strategies that we can deploy for you. However, we cannot proactively change your risk profile or risk tolerance since these are personally unique to each investor. You must communicate with us, and then we may adjust your investment strategies.

From our portfolio management perspective, we are trying not to overmanage the uncertainty of the markets with excess portfolio adjustments. We aspire to adjust each portfolio per its strategy objective per our process and as data is presented. We will continue to monitor, adjust, and communicate with you the best we can. Our goal is to provide you with reasonable risk-adjusted portfolios over reasonable periods of time.

Joe Maas, CIO | CFA, CFP®, ChFC, CLU®, MSFS, CVA, ABAR, CM&AA, CCIM
David Stryzewski, CEO | CSA, NSSA