PPI, CPI, and inflation portfolios - Focus on relative value can create opportunities

The current PPI numbers for finished goods continue to surprise to the upside with a gain of 6.6 percent YOY.  The PPI index for all commodities is even higher. Both increases suggest a lift in CPI. The PPI moves in 2021 have not been see in the last decade and by some measures these increases have never been seen since the Great Inflation. 

Inflation shocks have different impacts on equity sector performance. Energy and industrials as extractors and originators of product do well when there is a growing gap between PPI and CPI. Final sellers like consumer stables and discretionary are negatively correlated with this gap. Gains can be crated through focusing on inflation relative value.