If you’ve been to a grocery store lately, the recent announcement from the Federal Reserve should not have been surprising: inflation seems to be sticky. While some progress has been made in reduci…
If you’ve been to a grocery store lately, the recent announcement from the Federal Reserve should not have been surprising: inflation seems to be sticky. While some progress has been made in reducing the inflation rate, prices remain elevated and are getting higher on many necessary goods and services. Though the inflation rate may not be as high as it was a year ago, remember that the inflation rate is the measure of price increases.
Wherever you may fall on the spectrum, it is increasingly important to plan for a lengthy period of high inflation. First, I think we need to better understand where inflation is coming from and why, then discuss how we can deal with it now and into the future. As another example, let’s say we have a secret money printer stashed somewhere on the island. Our unfair advantage gives us the ability to buy as many apples as we want. Any time we need another dollar, we simply turn the printer on. But as time passes, more money is introduced to our little island economy. Suddenly that dollar doesn’t buy as much as it once did. If we have 10 apples and $14 , the price per apple is now at $1.40.
Billions and trillions are hard to grasp, so think about it like this: If I had a client tell me they were spending $8,700 per year on credit card interest, that would be a problem. If they then put another $15,820 per year on that same credit card, I wouldn’t know how to help them. If that same family makes $50,000 per year but spends $65,000 , they’re going to find it difficult to increase their income enough to offset their expenses. The way out is spending less and increasing the income.
Outsized inflation could be an uncomfortable reality for the coming months and years. There’s little we can do to affect the inflation rate, so our best course of action is preparation and planning. Consider how continued inflation might affect your financial plan and ask your adviser what they’re doing to ensure your purchasing power remains unaffected over your lifetime.
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