Today’s post will be short, as tomorrow is a holiday leading into a long weekend—and next week is vacation! I have to admit, I am ready to get out of the office for a week. As much as I love Commonwealth and Massachusetts, a warm week at the beach isn’t bad either. Add in a chance to see my parents for Easter, and I’m very glad to be heading out.

Following up on yesterday’s piece on inflation, I wanted to dig deeper into another topic I’ve been hearing about recently: stagflation. When people look at inflation and the fears of slower growth, the idea of stagflation comes back to life from the 1970s and 1980s. But that was a long time ago when few of us were paying attention to economics. So it’s worth going back to basics and thinking about what stagflation is before we start to worry too much.

The most recent inflation data came in this morning, with the Consumer Price Index (CPI) up sharply again. The headline index was up by 1.2 percent for the month and by 8.5 percent for the year (a 40-year high). On the face of it, inflation is approaching a crisis. What if it keeps on rising?

The most recent news bomb taking markets down was the release of the minutes from last month’s meeting of the Fed. The Fed raised rates, as was amply reported. In the following press conference, Fed Chair Jerome Powell was widely reported to be more hawkish, which is to say, likely to raise rates further. But what we did not know until yesterday was just how emphatic the decision was for the entire committee.

We saw a bit of a bounce in stock markets in March, but not enough to recover from a terrible first quarter. U.S. markets were up between 2 percent and 4 percent for the month, and developed markets managed to squeak out a small gain, but everything else was down from 1 percent to 3 percent. For the quarter, markets were down between 3 percent and 8 percent, with blue-chip companies doing best and tech stocks getting hit the hardest.

The housing market has shown exceptional strength after rebounding from the sharp but brief decline in the early months of the pandemic. Many factors have contributed to this—exceptionally low mortgage rates, aggressive stimulus, and the need for more housing as work and childcare were brought home. Now, all of these factors are diminishing while the cost of living is rising due to higher inflation. As a result, the housing market might be heading for a slowdown.

For the past couple of weeks, we’ve been talking about two things: the war in Ukraine (and its effects) and inflation and the Fed. These have very much been the hot topics, and deservedly so. But with a lull in the news on both, it’s time to check back in on Covid, which has not gone away.

Last week, we looked at what inflation actually is—and where it is coming from. As we noted then, three categories (housing, transportation, and food and beverages) account for three-quarters of all spending. So, if we talk about inflation, this is really what we are talking about. As we also noted, those categories have grown faster since the start of 2021, especially transportation. But none of that tells us what will happen over the next year or so. To determine that, we need to take a closer look.

Brad here. As we talk about inflation (and we will have more to say next week), the real question for us, as investors, is what we should do with our portfolios. No one is more qualified to answer that question than Pete Essele, who runs our Preferred Portfolio Services^® Select asset management program. Here are his thoughts—have a great weekend!

We’ve talked a lot about higher interest rates and what they mean for the market. But we haven’t really looked at what is driving those higher interest rates, which is inflation. Of course, you see the stats and the headlines, but as usual, there is very little context or explanation as to what those numbers mean. Today, I want to take a look at what inflation actually is.