High Inflation and the Ongoing Labor Shortage

February 4, 2022
By Tim Courtney, Chief Investment Officer

Inflation remains well above historical averages. During 2021, the consumer price index (CPI) jumped 7% ― its largest 12-month surge in nearly 40 years.1

The sharpest price increases stem from goods and commodities, including food, energy and base metals, as supply chain disruptions persist.2 While most expect the prices of these raw materials to ease in the coming months, there are still other factors that may continue to boost inflation.

For one, rising rents have not been fully factored into CPI data yet. According to Bloomberg Economics’ David Wilcox, “The CPI aims to measure rents on all units, newly occupied or not. The latest twitch in the management company’s front office may not be relevant for the bulk of renters until many months later, when their leases turn over.” This means that housing costs will be a force keeping CPI numbers higher well through this year.3

A larger issue, however, fueling inflation is the ongoing labor shortage. You don’t have to look far to see this playing out firsthand, from “help wanted” signs in storefronts to longer wait times in restaurants to headlines regarding the “Great Resignation.” In fact, the U.S. Bureau of Labor Statistics reported a record 4.5 million American workers quit their jobs in November 2021.4 Meanwhile, the U.S. still has roughly 3.6 million fewer jobs filled than in 2019, yet gross domestic product (GDP) has fully recovered.5,6 With a smaller workforce producing the same economic output ― combined with the emotional toll of the pandemic ― you can imagine why American employees are feeling increasingly stressed and burned out.

One potential positive from these high quit numbers: It may be that a good amount of these resignations are by workers who plan to open their own business. This would be welcome following the lockdowns when so many small businesses ceased operations.

Still, as a result of the labor shortage, we are seeing wage inflation as companies entice employees with higher compensation. According to the Bureau of Labor Statistics, annualized average hourly earnings climbed by 4.7% in December 2021.7 This is positive for household wealth and confidence but certainly creates a higher inflation risk for investors.

While robotics and automation may alleviate some worker shortage pain points, it will take time for these to work their way through the economy. Until then, many companies, which previously were hesitant to raise their prices, are planning price increases for 2022 to protect their margins.8 This is one way that holding stocks can be a hedge against higher than average inflation.

We don’t anticipate seeing 7% inflation forever, but inflation remaining well above the 1.5% level we’ve gotten used to in recent years could become the norm. If you have any questions about inflation or inflation-hedges, please contact your Exencial advisor.


  1. USA Today (1/12/22) — Inflation reaches highest level since 1982 as consumer prices jump 7% in 2021
  2. Bloomberg (9/13/21) — Commodities prices are surging again
  3. Bloomberg (12/13/21) — U.S. home-price surge looks much tamer in government CPI report
  4. com (1/4/22) — A record 4.5 million workers quit their jobs in November
  5. The Wall Street Journal (1/13/22) — As U.S. approaches ‘full employment,’ new inflation risks emerge
  6. The Washington Post (7/29/21) — U.S. economy grew at annual rate of 6.5% between April and June, marking full recovery from pandemic
  7. S&P Global (1/10/22) — Economic research: U.S. economic roundup: Tight job market allows for more Fed tightening
  8. Reuters (9/22/21) — Investors watch U.S. companies’ record profit margins as costs rise further

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living. The CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.

PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RETURNS. Information and opinions provided herein reflect the views of the author as of the publication date of this article. Such views and opinions are subject to change at any point and without notice. Some of the information provided herein was obtained from third-party sources believed to be reliable but such information is not guaranteed to be accurate. In addition, the links provided within are for convenience only and the provision of the links does not imply any sponsorship, endorsement, or approval of any of the content. We do not guarantee the content or its accuracy and completeness. The content is being provided for informational purposes only, and nothing within is, or is intended to constitute, investment, tax, or legal advice or a recommendation to buy or sell any types of securities or investments. The author has not taken into account the investment objectives, financial situation, or particular needs of any individual investor. Any forward-looking statements or forecasts are based on assumptions only, and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Any assumptions and projections displayed are estimates, hypothetical in nature, and meant to serve solely as a guideline. No investment decision should be made based solely on any information provided herein and the author is not responsible for the consequences of any decisions or actions taken as a result of information provided in this book. There is a risk of loss from an investment in securities, including the risk of total loss of principal, which an investor will need to be prepared to bear. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. Exencial Wealth Advisors, LLC (“EWA”) is an investment adviser registered with the Securities & Exchange Commission (SEC). However, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. EWA may only transact business in those states in which it is registered, notice filed, or qualifies for an exemption or exclusion from registration or notice filing requirements. Complete information about our services and fees is contained in our Form ADV Part 2A (Disclosure Brochure), a copy of which can be obtained at www.adviserinfo.sec.gov or by calling us at 888-478-1971

subscribe for updates on new resources