Inflation: You Are Not Imagining It, Things Are More Expensive

Americans are starting to see the impact of increasing prices and the start of inflation. With today’s economic conditions, limited supply, and high demand, consumer prices are rising at its fastest rate in thirteen years. Not all consumer goods are experiencing inflation at the same rate, food has slightly increased while gas and vehicles are experiencing double-digit increases.

Other items experiencing inflation include home furnishings, airline fares and apparel. Since COVID-19, clothing at retail stores has continued depleting as manufacturing halted, creating demand for products ordinarily accessible.

“The all-items index rose 5.0 percent for the 12 months ending May; it has been trending up every month since January, when the 12-month change was 1.4 percent. The index for all items less food and energy rose 3.8 percent over the last 12-months, the largest 12-month increase since the period ending June 1992.”

                    —U.S. Bureau of Labor Statistics, June 10, 2021.

COVID-19 may have caused some of the inflation, but more may be due to underlying circumstances of an inverted economy. The U.S. carries close to $24.2 Trillion with a 106% Debt/GDP Ratio (Gross Domestic Product). The GDP ratio indicates that the U.S. owes more than it produces and consumes domestically or exports. With less produced domestically, consumers are stuck paying higher prices for imported goods.

Inflation impacts consumer goods but can also affect your investments. Inflation risk can occur when investments are not optimized to address the rising costs of goods and services, which can prematurely deplete a retirement portfolio.

“We are entering a period where wealth building requires everyone to become more strategic about their financial lives — from consumption levels to building sustainable pathways beyond retirement that include savings and investment. This uncharted territory is fertile ground for both the financial industry and our most vulnerable communities.”

                    —Dr. Nicolas Jolly, Associate Professor of Economics, Marquette University. How Inflation Will Dip Into Your Pocket and What You Can Do About It.

What can investors do to offset inflation risk?

• Allocate part of their portfolio to specific products to allow asset allocation strategies to address inflation.
• Improve financial literacy and develop a budget to manage spending
• Reduce the use of credit since inflation will likely increase interest rates

The impact of inflation and future taxes due to COVID-19 will continue to make it critical that you consider your retirement portfolio’s allocation and prepare for your financial future. If you are nearing retirement, make sure you address inflation, prepare for higher taxes, and discuss inflation-saving strategies with your financial professional.