How Long Is ‘Transitory’?

Charlie Toole, CFA, CFP^®

Director of Portfolio Management

This week’s reader question:

How long will elevated inflation last? Is transitory still the right way to think about it?

To say that this is a hotly debated topic is an understatement.

Many analysts and investors view today’s inflation environment as “transitory”—but what that actually means is open to interpretation. Transitory includes a timing component by definition, but is that time frame three months, six months or a lot longer?

Wall Street analysts and some Federal Reserve governors are starting to change their tune on inflation, suggesting it could remain higher longer than previously anticipated. For instance, earlier this week Atlanta Fed Chair Raphael Bostic called transitory a “swear word” that he doesn’t like using to describe inflation. He went on to say, “I continue to believe currently elevated inflation is episodic, driven by pandemic conditions such as disruptions in supply chains and labor markets. A major caveat, though, is that the severe and pervasive supply chain issues will probably last longer than most of us initially expected.”

As noted above, September CPI rose 5.4% from the same time last year. The good news is that inflation estimates for late 2022 are close to 2%, and they haven’t budged over the last six weeks.

It’s likely that inflation will normalize late next year. Until then, expect the debate and wordplay to be “severe and pervasive”—anything but transitory.

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