People have been feeling the effects of inflation in nearly every aspect of their lives. Everything from food to gas to home repair products seems to be increasing with each day. So, what caused this inflation to occur and what is it affecting most?
Inflation has found its way to oil and gas prices, food, rent, and travel the most. To put that in perspective, the 2022 August Consumer Price Index (CPI) numbers give a sense of how inflation has affected us.
Meats, poultry, fish, and eggs, saw a 8.2% increase year over year, likely exacerbated by supply chain shortages and the effects of COVID-19 lockdowns and stimulus. Gas saw a 10.6% drop over the previous month. Inflationary pressures remained strong across other components of the report, with declining gas and energy prices offset by increases in the costs of shelter, food, and medical care — the largest of many contributors to the broad-based monthly increase, per the Bureau of Labor Statistics.
In the context of your retirement, this likely means you’ve had to adjust your budgets and spending patterns to make sure you don’t over-burden your retirement income. You may have re-considered travel plans, cut back on eating out, or avoided certain grocery items that have seen large price increases.
With this inflation came a hefty amount of market volatility. If you’re approaching retirement, you may have felt the effects of the recent market downturn in your market-exposed investment accounts. So, how does this all tie together?
The Federal Reserve has raised interest rates aggressively to combat the effects of inflation, citing inflation as a major threat to the economy. However, this also comes at the cost of slowing the economy and inducing a declining stock market. The Fed cites an already strong labor market, but if inflation sticks around and interest rate hikes continue, will it induce stagflation? While the Fed does not believe stagflation is a heavy concern, some economists predict that it could be a possibility.
Stagflation is the concept that inflation accompanies a recession, rather than trading one for the other. In the 1970s, among other factors, labor unions threatened profit margins for businesses, creating layoffs and a slow economy. But high-interest rates were needed to combat the inflation caused by oil embargos and government assistance was also needed to support the laid-off, inflation-affected population which created high budget deficits. Add in geopolitical conflict and the collapse of managed currency rates and you have stagflation – persistent inflation accompanied by a recession.
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There are financial products out there that can help protect against the effects of inflation and there are strategies that you can implement. But there is no one-size-fits-all solution and there are pros and cons to each. If you’re wondering how to protect against inflation, market volatility, or stagflation in your retirement portfolio, contact us at (603) 261-3736.
Bob has a passion for making your money work hard for you. He takes profound joy in ironing out a plan for a long and comfortable retirement, no matter what your current income or level of wealth. With a work ethic second to none, he has a zeal for transforming uncertainty into stable ways for you to protect your future and your family. He knows that the quality of your life you enjoy today can remain as rewarding—or even better—after retirement.
With a strong background in information technology, Carol is instrumental in building operational policies and strategies that keep the organization functioning smoothly. Carol’s organizational skills and her flexibility to jump from priority to priority along with her commitment to customer service makes her an essential part of the Grimard Financial team. When Carol is not working with the Grimard Financial Family, she is a very creative and accomplished photographer.