Inflation Nation

Inflation Nation

June 21, 2022
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It is not news to anyone that inflation has become a major problem in this country. Everyone is feeling the sting of higher prices particularly those who live on a fixed income. Perhaps nowhere is this felt more strongly than at the pump and at the grocery store. If it feels like prices in these areas have increased dramatically in a very short period of time, don’t worry, you are not crazy. The national average price for a gallon of gas has exceeded $5/gallon[i]. The cost of groceries[ii]has risen 11.9% from a year ago which is the largest year-over-year increase since 1979. Overall inflation[iii] has now reached about 8.6%.

 

In order to combat unprecedented inflation, the Federal Reserve announced Wednesday (6/15/2022) that it is increasing interest rates by 0.75%, an amount that we haven’t  seen in 28 years[iv]. I took some time to explain the role of Fed in a prior blog post, which you can read here[v]. The gist of it is that by raising interest rates, the Fed hopes to cool off the economy and slow down inflation. However, many economists believe that the Fed is playing catchup and that they are trying to do too little too late. As prices go up, the market has gone, predictably, down. All three of the major indexes were down double digits year to date as of the market close on 6/15/2022.

 

With all of the scary numbers out of the way, is there any silver lining for the average investor? As a matter of fact, there are a few! The first of which being that with interest rates rising, homes prices should begin falling. At present, the home buying market remains hot but if interest rates continue to rise, prices will eventually hit a tipping point and begin to fall. This is good news for those looking to buy a home, particularly new homebuyers. In other good news, despite fears of a “Great Resignation”, it appears that America has gotten back to work following COVID-19 lockdowns. U.S. employers are hiring employees at a rate that is higher[vi] than employees who are quitting or being laid off.

Perhaps the biggest silver lining lies in the opportunity for investors with a long time horizon to retirement. For those individuals who are 10+ years away from retirement, this could be the chance that they have been waiting for to deploy cash on the sidelines. After over a decade of bull market run-up, a large drop in the price of stocks presents those with the means to invest with the opportunity to buy at very low prices. Even those who simply, dutifully put away a portion of their income every month will be able to take advantage of recent market volatility. Due to a concept known as Dollar Cost Averaging[vii], times like these serve to lower an investor’s average cost per share over the long-term.

With everything going on in the world and the economy, it is always a good idea to stay optimistic. That said, it is my hope that today’s song of the week will help to alleviate your anxiety and put you in a better mood. Enjoy!

Song

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.


[i] https://www.freep.com/story/news/local/michigan/2022/06/13/gas-prices-michigan-gallon-fuel/7607564001/

[ii] https://www.axios.com/2022/06/13/rising-food-prices-are-changing-the-way-we-eat-and-shop

[iii] https://www.provisioretirement.com/blog/inflation-agitation

[iv] https://www.cnbc.com/2022/06/15/federal-reserve-interest-rate-hike-how-raising-rates-slows-inflation.html

[v] https://www.provisioretirement.com/blog/whos-the-fed-anyways

[vi] https://www.washingtonpost.com/opinions/2022/06/14/economy-recovery-labor-market-jobs-unemployment/

[vii] https://www.investopedia.com/terms/d/dollarcostaveraging.asp