The annual inflation rate reached 4.2% this April. Soaring from 2.6% in March, this was well above the market forecast of 3.6%. As we watch these key performance indicators, it is important to keep a few things in mind:
- Year over year comparisons are upended as economic conditions this time last year were dire amid a nationwide shutdown.
- While most analysts believe that inflation will tick higher for a few more months as demand bumps up against a still constrained supply chain, this recovery is fueled by an unprecedented fiscal stimulus. As such, consumer spending outperformed the same point in prior recoveries (2003 and 2009.)
- April’s drastic increase included exceptional gains among widely re-opening sectors such as airfare, hotels and other leisure and travel as the CDC loosened regulations for those who have been vaccinated.
That said, the longer inflation remains elevated and threatens to increase, the more it will affect the commercial real estate market. High-powered investors will look to commercial real estate as a safe place to park money including the rapidly expanding life sciences and logistics market and the CRE darling, multi-family. Retail tenants with rents tied to profits and CPI will see rent increases which may further entice investors to leased investments.
FED Chair Jerome Powell has said that interest rates will not rise until the labor market stabilizes. So long as interest rates remain low, it’s high time to invest in commercial real estate.