Inflation rate (CPI) hit 7.1% in December, a 40-year high
Three primary factors are driving inflationary pressure, and will likely not be resolved in the short-term:
1. Supply Chain:
- Disrupted supply chains is restraining the amount of goods and raw materials available to the market
- At the same time, consumption is elevated with inflation-adjusted retail sales up 16% from pre-COVID
- This is supply-demand mismatch is stoking prices and putting upward pressure on inflation
2. Labor Shortage:
- Record 4.3M shortfall of job openings and people looking for work creating wage pressure
- Rising wages is a “sticky” form of inflation and will likely stay with us even after the shortage is resolved
3. Housing Shortage:
- Lack of affordable housing options is putting upward pressure on rents and home prices
- Rapidly rising housing costs will keep inflation elevated over the short to mid term
Additionally, the Federal Reserve has signaled a more hawkish stance in an effort to relieve elevated inflation pressure. For CRE investors, this could mean rising interest rates over the short term, as the industry’s inflation-resistant reputation draws new capital.
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