Annual inflation rate in the US accelerated to 6.8% in November of 2021, the highest since June of 1982. Consumer prices were up 6.8 percent from the previous year in November, according to newly released data from the Bureau of Labor Statistics’ Consumer Price Index. It’s the biggest jump in nearly 40 years, with the most notable increases in gas, shelter, food, used cars and trucks.
Understanding why the rate of inflation has risen so quickly could help clarify how long the surge might last. The recent acceleration in the rate of inflation appears to be fundamentally different from other inflationary periods that were more closely tied to the regular business cycle. Explanations for the current phenomenon offered to date include (i) continuing disruptions in global supply chains amid the coronavirus pandemic, (ii) turmoil in the labor markets, (iii) the fact that today’s prices are being measured against prices during last year’s COVID-19-induced shutdowns, (iv) strong consumer demand after local economies were reopened, (v) rise in energy prices and natural gas.
According to recent studies here are the top five areas where consumers plan to cut back on their spending: restaurant/take-out meals, current technology (e.g., phone, tablet) instead of upgrading, grocery buying, clothing/accessories, and home repairs, renovations, or home upgrades.
Will Inflation Continue to Rise in 2022?
Many experts believe that U.S. inflation will decelerate going into 2022, though there’s no consensus on the matter. Improved semiconductor supply and an easing of port congestion around the world could help slow inflation down if nothing goes seriously wrong. That said, if the last few years are any indication, unexpected events could shift the situation at any time.
Companies who successfully implement sustainability practices are well positioned to navigate an inflation period and remain relevant in a changing world.
Now’s the time for investors to stick with Responsible Investment strategies. While some companies will struggle with higher inflation, businesses with robust ESG practices have the advantage of strong leadership and long-term thinking. Their leaders are aware of environmental risks and opportunities that they may come across.
Businesses that have integrated sustainability solutions into their practices are also well positioned to increase the value of their brand, as more consumers want to shop and work with ESG-focused operations.
If inflation does increase there’s also a good chance that interest rates will rise. That means higher costs of capital more broadly. Companies with better ESG practices, however, tend to have a lower cost of capital and can access loans at lower rates. These companies will have access to capital at lower costs, which means increased margins.
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