Let’s face it. Everyone needs to worry about inflation. Everything costs more. The question is if some groups are more affected than others.
First off, retirees on fixed incomes are going to struggle with higher prices because they cannot make more money if they’re not working.
Working folks with families will also feel the pinch—especially people with children. Groceries cost more. Rising gasoline prices, especially in California, have caused people to take buses and ride bikes when they can. As food costs more, going out for dinner becomes a real luxury. Clothes, healthcare, building materials, and even the good ol’ cup of coffee have all challenged budgets for people across many age groups and income levels.
What’s causing the inflation?
We’ve got too many dollars (increased demand) chasing too few goods and services (decreased supply). It’s the textbook example of supply and demand curves lighting up a business student’s computer screen. There’s leftover pandemic stimulus money still in the system, and people have been cooped up in their houses during Covid. They couldn’t take trips and didn’t buy cars. Adding to that, almost everybody that wants a job has a job. Unemployment is low, which is good. But now, on top of that pent-up demand, we have the supply chain issue where you can’t get the products you need, and you can’t get the components to build them. Cars can’t be manufactured and shipped because the computer chips aren’t available. We think rising interest rates will start to mitigate the increased demand. But will that move by the Feds create another problem?
Let’s not say the “R” word.
When interest rates go up, people and businesses stop borrowing money. That’s the idea anyway. When interest rates rise, companies think twice before borrowing money to invest in building a new warehouse or buying new equipment. Mr. and Mrs. Homeowner may not take out a second mortgage at a higher rate to add a room onto the house or put in a swimming pool. Multiply that through the economy, and it can cause a Recession (“R” word). Then, people lose jobs, don’t eat out, and can’t buy as many groceries. The deflationary spiral can slow the economy down. Hopefully, we can stem the inflation and avoid a recession!
What’s the answer?
One of the best defenses against the rollercoaster of inflation and deflation is to have a plan that keeps your wealth building even during economic fluctuations. These ups and downs will come, and they will go. It’s a historical cycle that cannot be wished away.
Consider working with a financial advisor to help understand how to prevent being stuck at the end of your working career as a greeter at the local department store. Another good place to start is working to understand your employee benefits to see if you’re maximizing your payroll deductions, taking advantage of company match programs for retirement plans, or having the correct amount of money withheld from your paycheck.
These are unusual times. We may be headed for even more unimaginable events before it’s over. We’ve had a pandemic. A war in Ukraine. Climate change. Supply chain problems. What’s next?
Saving and investing is much easier if it’s set up on automatic withdrawal while you are accumulating (and only a little at a time). With sound financial advice, an appropriate withdrawal rate, and a tiny bit of discipline, even with inflation and crazy world events, people can wake up one day and find they’re on a clear path to private wealth
*The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.