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Cacic Wealth Management

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Address 500 Centre Street SE 27th Floor Calgary AB, T2G 1A6
Telephone Number (403) 508-3230
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Milan Cacic

October 08, 2021

Money Economy Commentary Trending Weekly update
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INFLATION..

We have had quite a few questions regarding inflation. So how could inflation affect your portfolio?

 

When the lock down began, we saw inflation in products that were in high demand because of our new adjusted lifestyles. For example, there was a surge in purchases of exercise equipment, outdoor activity equipment and electronics used to work from home. Now that we are starting to normalize again, we are seeing inflation on products that are used when in an open economy. In both of these cases, the supply chains were not prepared for the increase in demand. However, as time goes on, the supply chains will react and supply and demand will equalize. This is why most economists think that inflation will be temporary until supply and demand get into balance.

 

S&P500 Trailing 12-mth P/E vs. year over year cpi inflation rate chartWhat if we are wrong and inflation does continue to go up? As the chart above illustrates, the sweet spot for the market, as it pertains to the price-to-earnings relative to inflation, is between zero and 2%. Even if inflation gets up to between 2% and 4%, market multiples do not drop much. The real damage to market multiples begins if inflation gets above 4%. Needless to say, we will keep a close eye on the change of inflation for the next few quarters.

 

I have also included a piece from our CIBC economics team entitled "The truth about Canadian inflation".

 

As always please feel free to give us a call anytime if you have any questions.

 

Have a great long weekend!

 

Milan

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CIBC Private Wealth” consists of services provided by CIBC and certain of its subsidiaries through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC Private Wealth services are available to qualified individuals. Insurance services are only available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are only available through CIBC Wood Gundy Financial Services (Quebec) Inc.


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