Executive Summary

Recent inflation headlines have many investors on edge. As investors, we constantly challenge our own thinking and question when a transitory inflationary period may evolve into something different. In this instance, however, we believe high inflation is a confirmation of an accelerating expansion phase in the business cycle and investors should remain constructive on the market outlook. Our outlook is predicated on two primary objectives: containing COVID-19 and a reacceleration of global earnings revisions. Third-quarter earnings season is underway, and revisions thus far remain positive. We believe inflation pressure from supply chain bottlenecks stem from labor shortages due to the pandemic. PNC Economics expects to see further progress in the labor market in the coming months, which should continue to alleviate near-term supply chain shortages. We continue to keep a close eye on market indicators but believe markets are priced for a long-term recovery from last year’s recession.


  • The Consumer Price Index (CPI) has remained above 5% for the longest period since the early 1990s.
  • When compared to the accelerating expansion phase we experienced after the 2009 recession ended, recent CPI data shows a nearly identical trough-to-peak spread.
  • Over the past year, there have been three distinct waves of global COVID-19 cases that overlap with notable movements in commodity prices such as lumber and semiconductors.
  • While the first CPI report above 5% was on June 10, from June 10 through October 15, equity markets were driven by large-cap and growth stocks — not at all what a sustained high inflation backdrop would suggest.
  • Markets can adapt to new information quickly and look beyond the short term.