Monthly Investment Outlook - Commodity prices on the rise

title graphic: What’s ahead for U.S. economic growth and inflation?

We think that the stars are aligned for the strongest year of economic growth since 1984. There are three tailwinds that we believe should keep economic growth unusually strong through the first half of 2022:

1. Massive fiscal stimulus from President Biden’s last three budget proposals;
2. Huge excess savings accumulated during the pandemic; and
3. Accelerated vaccine deployment that is containing the spread of the coronavirus in the U.S.

All that good news at the moment is creating some investor anxiety about what it means for inflation. Price pressures already are building, and we think that more is on the way. We’re expecting supply-chain disruptions and rising transportation costs to keep “goods,” or merchandise, inflation at an eight-year high.

We’re also looking for services inflation to rebound from a 10-year low, propelled by unusually strong growth from last year’s freefall and by wage pressures lifting costs in the labor-intensive services sector. The big question is whether or not fear of rising inflation becomes self-perpetuating. Our opinion is that moderating growth, low inflation expectations and, most importantly, structural restraints like increased competition here and abroad will hold inflation in check beyond 2022.