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4 Reasons Why Transitory Inflation Is Unlikely

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Recently, Susan McGinnis spoke with David Schassler, Portfolio Manager of the Inflation Allocation ETF, RAAX, at VanEck during TheStreet's FREE webinar, How to Play the Inflation Trade.

One key topic revolved around how long we might be in this inflation environment, and the narrative that the current inflation period is transitory. Watch an excerpt above.

WATCH: How to Play the Inflation Trade, a FREE webinar, hosted by Susan McGinnis.

Editor’s note. The webinar was recorded on October 28, 2021.

Video Transcript Below

David Schassler: When you start to think about the level of inflation as well as the categories of inflation, we think that makes the case for a transitory argument very, very difficult to make at this point. And there are a few reasons for that. So I'm just going to list off as quickly as I can the key drivers of inflation and why it's unlikely to be transitory.

Quote by David Schassler, Portfolio Manager of the Inflation Allocation ETF, RAAX, at VanEck, on inflation 

Quote by David Schassler, Portfolio Manager of the Inflation Allocation ETF, RAAX, at VanEck, on inflation 

Key Drivers of Inflation

  • Money supply
  • Supply chain issues
  • Commodity prices
  • Housing

Schassler: In the intro, you mentioned the money supply. Yes, the money supply is up over 30% in the past year, but the level of the money supply, the increases, are still present-day well above long-term averages. That's increasing demand.

Supply chain issues. We are more dependent on foreign goods now than ever. At the same time, we've got these fragile supply chain issues related to COVID. So that's another issue causing inflation.

Quote by David Schassler, Portfolio Manager of the Inflation Allocation ETF, RAAX, at VanEck, on supply chain issues 

Quote by David Schassler, Portfolio Manager of the Inflation Allocation ETF, RAAX, at VanEck, on supply chain issues 

Schassler: Commodity prices. Commodity prices are elevated. Elevated commodity prices work their way through the entire economy and put upward pressure on inflation.

Housing. If you look at the shelter component of the CPI, that's the largest component of the CPI. That's about one-third. Now here's the thing with shelter. So shelter components are up 3.5%. If you go out and ask the average American who's been out looking for new housing over the last year, if their shelter costs are up 3.5%, they're going to say that does not pass the sniff test. Because when you look at housing prices, housing prices are up well over 20%.

The shelter component, rents, or rent equivalents typically lag housing prices by about 12 to 18 months. And that's why we believe there's going to be persistent upward pressure on the shelter component, not to mention wages. Employees are looking around, seeing higher costs everywhere. They want to maintain their standard of living, so they're asking for wage increases. That's putting upward pressure on the goods and services that we all purchase. 

Watch the full interview and learn what investors should do now.

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