Image source: Pixabay

After another month of surging prices, pain at the pump, and a precarious market, the Labor Department released the official inflation metrics in May’s Consumer Price Index (CPI).

The CPI is essentially a measure of the average prices paid by American consumers for essential goods and services. It measures price variations for products like gasoline, groceries, and other staples that act as indicators of economic fluctuation.  

Since inflation increased significantly in the last few months, May’s CPI was highly anticipated by everyone from Wall Street executives to Main Street consumers. Sadly, the numbers were pretty grim.

At an 8.6% year-over-year increase, inflation hasn’t progressed this quickly since 1981. For context, that’s the year NASA launched its first shuttle mission, IBM introduced the first PC, and Raiders of the Lost Ark hit the big screen.

As our inflation metrics rise, our collective economic confidence is dipping.

The Wall Street Journal reports:

The May inflation figures came as consumer sentiment soured further on the economy. The preliminary estimate of the consumer sentiment index published Friday by the University of Michigan fell to 50.2 in June from 58.4 in May, marking its lowest reading on record. Nearly half of those surveyed attributed their negative views to inflation, up from 38% the prior month, and long-term inflation expectations rose to the highest level since 2008.

Remedying this runaway inflation will be a challenge. Even with the Fed rolling out a campaign to raise interest rates, we still need to address price pressures caused by the persistent labor shortage and supply chain meltdown.

While the economy added over 6.5 million jobs during the last year, fewer Americans are employed than they were before COVID-19 crushed our economy. The competition to attract workers is creating wage inflation; higher spending power is propping up a demand surge and labor costs are causing further price increases.

As cargo ships are held up in harbors across the country, the shipping delays create demand increases and contribute to inflationary pressures. The scale at which these supply problems are affecting the economy isn’t yet being fully felt in many cases. If recession hits and demand drops, who knows how many profits will be lost as retailers struggle to offload unwanted merchandise?

I guess the good news in all of this is that pay rates seem to be going up. Inflation is seemingly here to stay, but if we’re able to meet it with higher earnings, perhaps our economy could avoid a recession. Let’s hope for the best. 
 

More Non-REIT News to Know About

Under New Management 

A few weeks ago, I reported on McDonald’s (MCD) pullout from Russia—the fast-food chain has closed all of its stores in the country. Now, more than a dozen of those former McDonald’s locations have opened up under a new moniker: “Vkusno & Tochka,” which translates to “tasty and that’s it.”

Upon reopening, the Russian-branded burger chain launched an ad campaign to convince customers the new burgers are just as good as their American counterparts. I’m sure…

The Kremlin is also using these reopenings as propaganda, pushing a narrative that even though the country is embattled in war, Russia’s economic resilience remains top-notch.

“We will maintain the quality and level of service that guests have become accustomed to over the years,” said Alexander Govor, a Siberian businessman and the new owner, at a press conference ahead of the reopenings yesterday.
 

The World According to REITs

Interest Rate Insulation 

As inflation rises, the Fed will do everything it can to bring down costs for the American consumer. Unfortunately, this isn’t always great news in the real estate world… Rising interest rates won’t just cool buying habits; it will also bring much anxiety to the equities sector. A sudden rate increase could wreak havoc on your portfolio. Bear markets bring down stock prices.

One way to insulate yourself from interest-driven dips is to buy REITs at a discount now. What makes a good discount? There are a few things you want to look for in undervalued assets. Price-to-earnings (P/E) ratios, yield, and capital appreciation potential could all point to a great deal in the REIT world.

One excellent example of an undervalued REIT is Minto Apartment REIT (MI). This Toronto-based multifamily mega-REIT is currently trading at C$16.42 (33% down from its pre-COVID price). Yet, it has a 4.6 P/E ratio—which tells me this REIT is really undervalued.

It seems this REIT is adjusting to the economic aftermath of COVID, and once the rental market shows the slightest sign of stability, it will find its stride. In other words, it has a lot of capital appreciation potential. 

Remember, look to the future when considering REITs. Track performance and consider a range of factors. This could help you add some lasting value to your portfolio as interest rates accelerate.