The Three Prongs of Inflation. From Hartford Funds

The Three Prongs of Inflation. From Hartford Funds


The Three Prongs of Inflation. From Hartford Funds

Supply-chain bottlenecks and disruptions are holding up inflation longer than expected;
here’s what investors need to know.

The US Federal Reserve (Fed)’s message on inflation has changed. Fed
Chairman Jerome Powell recently characterized supply-chain bottlenecks
and disruptions as “frustrating” and as “holding up inflation longer than we
had thought.” The Fed’s mea culpa is small consolation for investors whose
portfolios haven’t been positioned optimally for a longer-than-expected
period of higher inflation.
I previously said inflation would likely be stickier than the market or the
Fed anticipated. The question now is: Has inflation already peaked? In my
opinion, the short answer is no.

The Systemic Nature of Supply Shocks

Inflation is being pushed higher by three catalysts—labor, raw materials,
and transportation—that are interrelated in ways that create longer-lasting
systemic risks for the economy. I use the term systemic because of the
parallel to systemic financial risks, in which stress in one area of the market
spills over into other parts of the financial system, amplifying the initial
For example, the CEO of a computer hardware company recently told our
analysts that it wasn’t just semiconductors that were in short supply, but
also plastic, resin, copper, and steel. Then once the hardware is built, it’s
transported on container ships that are backed up at US ports. Finally, a
scarcity of truck drivers and port workers means that getting the finished
products to stores is delayed.
Thus, while some supply-chain strains may ease relatively soon, the ongoing
bottlenecks could take at least another year to resolve.

Why Supply-Chain Issues (and Inflation) Could Persist

  • Labor: US wages are up 4.6% over the past year (as of September 2021)
    amid a tight labor market. Indeed, FIGURE 1 shows the highest job
    quits rate in 20 years, suggesting workers are confident in their ability
    to find other employment. This is a good predictor of potentially even
    higher wages going forward. Meanwhile, some 5 million people have left
    the labor force during COVID-19, half of whom are 65 and older. Lower
    immigration rates and lingering health concerns have also shrunk the
    labor pool. Finally, strikes at large corporations across industries reflect
    a shift in power from management to labor, which could put more
    upward pressure on wages. Elsewhere, COVID-19 resurgences in Asia
    shut down factories and ports, exacerbating supply challenges.
  • Raw materials: The price of oil is up a stunning 80% year-to-date. Other commodity
    prices, such as metals, are up around 30%. Part of the story here is demand-driven as
    the global economy reopens, but there are two other contributing factors that may be
    longer-lasting. First, commodity supplies are constrained due to much lower capital
    expenditures and greater capital discipline after a period of overinvestment and
    underdelivering to shareholders. Second, decarbonization is raising the breakeven price
    at which companies can increase production economically. The result: shortages of
    everything from computers to cars, canned goods, and clothing.


  • Transportation: The average price to ship a 40-foot container has quadrupled over the
    past year.1 Bottlenecks at temporarily shut-down seaports and a flurry of congestion at
    rail terminals, warehouses, and distribution networks are extending the time it takes
    to move goods from China and other Asian ports to the US. It’s also been taking a long
    time just to get empty containers to where they are needed. Shortfalls may be peaking
    though, as some labor conditions ease and more transportation assets come online.


  • Housing: Could housing become the fourth prong of higher inflation? US home prices
    are up around 20% over the past year, while rents are up around 10% nationally. Owner’s
    equivalent rent (OER),2 the Consumer Price Index (CPI)3 code for “shelter costs,” is driven
    by the rental market and represents 30% of core CPI. I wouldn’t be surprised to see OER
    rise 4%-6% by the end of 2022, which could tack 1.2-2.0 percentage points onto inflation
    over the next 12 months


10 Things You Should Know About  Sustainable Investing. From HartfordFunds

10 Things You Should Know About Sustainable Investing. From HartfordFunds

10 Things You Should Know About Sustainable Investing. By: Hartford Funds

Sustainable investing is becoming more mainstream. Here are some key things to consider.

Sustainable Investing

  1. Terminologies May Differ – There are many approaches under the sustainable-investing umbrella.
    Examples include socially responsible investing (SRI); environmental, social, and governance (ESG)
    integration; and impact investing. There isn’t currently a uniform definition of these terms and different
    asset managers may define them differently.
  2. Socially Responsible Investing (SRI) or Exclusionary Investing – The modern version of the term SRI has
    its roots in the 1960s and aims to avoid what some consider to be socially “bad” companies (think tobacco
    companies or casinos).
  3. Environmental, Social, and Governance (ESG) – ESG criteria are a way to evaluate how a company behaves.
    For example, environmental standards can measure how a company treats natural resources; social
    standards can evaluate how a company manages relationships with its community; and governance criteria
    can focus on issues such as recruiting women and minorities for the board
  4. ESG in Action – The emphasis placed on ESG criteria varies across funds. Some funds may view ESG factors
    as one consideration among many as they make their investment decisions. Other funds may demonstrate a
    higher level of commitment to ESG investing by making it a key consideration in their investment decisions.
  5. Impact Investing – This strategy generally involves seeking to generate positive, measurable, reportable
    social and/or environmental impact alongside a financial return. For example, an “impact” fund may invest
    in companies that strive to make the world a better place, such as renewable power-generation company, a
    water-treatment facility, or a company that seeks to eradicate a disease.
  6. Performance Matters – Sustainable funds ”comfortably outperformed their peers” in 2020.1 Further
    diminishing lingering assumptions that sustainable investment strategies will underperform, 35% of
    sustainable funds finished in the top quartile of their Morningstar Categories and 66% in the top half.
  7. Not Just for Millennials – Contrary to popular opinion, many investors across all ages feel positively about
    a sustainable portfolio: 44% of people age 71+ as well as 60% of people age 18-37 rated it favorably.
  8. Explosive Growth – Sustainable investing is growing in popularity. During the last decade, it’s become
    a mainstream strategy as opposed to an aspirational concept. In fact, $17.1 trillion was invested in
    sustainable-investing strategies in the US at the beginning of 2020, up 42% from just two years prior.
  9. Something to Talk About – A recent study found the top three issues for asset managers and their
    institutional clients are climate change/carbon, sustainable natural resources/agriculture, and board
    governance.3 Your list may be quite different. Talk to your financial professional about the causes you
    support or issues that concern you.
  10. Changing Perceptions – Despite some lingering reservations about sustainable investing, 57% of people
    say they would feel optimistic about incorporating sustainable funds into their portfolio. Many of
    those who felt positively attribute this to the positive environmental impact pursued by some sustainable strategies.