investors are watching closely for any signs that the surge in the cost of living during the pandemic may be starting to ebb with wells fargo investment institute among financial firms pointing to possible relief ahead “inflation is in the process of peaking out” scott wren senior global market strategist at wells fargo investment institute told marketwatch in a phone interview the recent decline in prices of raw materials for finished goods may be a sign of that he said as the ups and downs in costs of finished goods typically follow rawmaterials prices with a lag rawmaterials prices may have “peaked out” wren said referencing a chart in a wells fargo investment institute report this week see below price changes in raw materials tend to predict consumer inflation 12 months ahead according to the report which was coauthored by wren and paul christopher head of global market strategy at wells fargo investment institute “if the broad trend continues we expect consumer inflation to slow somewhat by midyear and materially by yearend 2022” wren and christopher wrote “lumber copper and soybean prices for example are significantly lower than they were earlier in the year and holding” read why investors should buy the dip in copper over the next 3 months amid a commodity ‘supercycle’ in futures trading wednesday december copper hgz21 fell 2 to 4266 a pound that’s below price levels of more than 470 seen in midoctober and may for the industrial metal but still above the beginning of 2021 when copper was quoted below 4 a pound us inflation jumped in october pushing the yearoveryear rate to a 31year high of 62 as measured by the consumerprice index meanwhile the rise in the producerprice index in october showed the 12month pace of wholesale inflation was high but flat at about 86 while the higher cost of living as measured by the cpi index may remain elevated into next year wren said that it’s probably in the “process of topping out” wells fargo is now estimating that the pace of inflation may decelerate to around 4 next year he told marketwatch related ‘win’ buttons look like a terrible inflation hedge but here’s what they say about the battle against rising prices in another sign that inflation could ease “from the suppliers’ side factories in asia are reopening and some transportation costs are peaking” wren and christopher wrote in the wells fargo note frost investment advisors also pointed to declining shipping costs in a recent report “we’re seeing some early signs that the trade bottlenecks may be easing a bit” frost said in its note on market news and views for the week of nov 8 “while the number of ships anchored off california waiting to unload is still very high freight rates appear to be moderating both for containers and for trucking” while rates remain “quite high” frost said “any improvement is welcome” the course of inflation is important for investors to watch as it’s “one of the most prominent risks to portfolios today” according to the wells fargo report “we believe inflation will moderate in 2022 but we expect the path to lower inflation to begin with higher inflation in the front half of the year” for tactical positioning over the next year and a half that considers “aboveaverage inflation” wren said by phone that “we want to lean toward recovery” and into cyclical sectors such as industrials commodities and financials as for the energy sector wells fargo recently shifted to “even” weight from overweight he said explaining that energy has seen “a pretty outsized run” “so we took a little money off the table there” he said the sp 500 index’s energy sector sp500ew10 fell sharply wednesday but still has gained more than 50 so far this year factset data show commodities and cyclical equity sectors should “outperform with growth and inflation near a peak” according to the wells fargo note “the sectors we prefer to avoid tactically are those that we expect to underperform under a strong economy rising interest rates and inflation that has not yet peaked one important example is longterm fixed income” wren and christopher also cited their “unfavorable rating on shortterm fixed income while investors price an eventual federal reserve response to inflation” read treasurys remain mixed with 10year rate little changed as investors await fed speakers although the fed has maintained its view that elevated inflation will be “transitory” lpl financial’s asset allocation strategist barry gilbert said in a research report this week that its peak may still be ahead amid “supply chain challenges and tight labor markets combined with high demand as the global economy bounces back” in the pandemic “but market participants don’t need to wait until cpi is back under 3 to feel a sense of relief” wrote gilbert “it would be enough to know that we’re past the peak something that might not happen until 2022” beyond supply chain concerns and energy and commodity prices gilbert said investors should watch for signs that housing costs may be stabilizing “shelter excluding energy costs essentially housing costs and rents makes up about 13 of cpi and just over 40 of core cpi excluding food and energy” he wrote “housing costs have jumped the last three months and housing inflation is a concern both because it represents such a high proportion of consumer spending and because it tends to be relatively sticky” he suggested that “consecutive monthly readings near 03 would be a good sign that housing costs have stabilized” even though at that level costs may continue to climb on a yearoveryear basis in the first several months of 2022 “but if rising housing costs and consumer expectations make higher inflation stickier we could see the first rate hike pulled into 2022” gilbert said read federal reserve should ‘tack in a more hawkish direction’ bullard says