What You Need to Know
- Schwab's chief investment strategist recently discussed outlooks for inflation, the Fed, stimulus spending and tax hikes.
- She says much of the jump in consumer prices is behind us.
- Sonders says it's too soon to know the impact of potential increases in corporate and capital gains taxes.
Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., says much of the pickup in consumer prices “is largely behind us,” but she’s not fully convinced that the increase in inflation overall is transitory, as the Federal Reserve says.
In a recent Schwab Live webinar, Sonders noted several economic measures that she’s following closely for signs of rising or falling inflation:
1. Rent of primary residence and owner’s equivalent rent, which together account for about 30% of the consumer price index (CPI). The owner’s equivalent rent is the amount a homeowner could charge to rent out their home in the current market and includes expenses such as mortgage and tax payments.
Both measures are closely tracking each other, have been falling since 2020 and recently headed higher, rising 2% from a year ago.
2. CPI minus PPI. The year-over-year change in this data point is negative, which generally doesn’t bode well for profit margins and stock prices, according to Sonders. In July, the producer price index for final demand increased 7.8% from a year ago — far more than the comparable 5.4% increase in the CPI.
Renewed supply chain disruptions, including those emanating from China, could feed into rising inflation, Sonders said, but she noted a slight improvement in supply deliveries, as reported by the Institute for Supply Management.
3. Wages. The rise in wages could become a longer-term inflation story as businesses struggle to attract workers, Sonders said, noting that some sectors such as leisure and hospitality are under heavy pressure to attract workers.
Those industries, however, are not a large share of the U.S. economy or national inflation metrics. These pressures could ease if more workers enter the labor market when enhanced unemployment benefits end in September for many.