At Unified Wealth Management, we love to help people pursue their financial goals. One of the ways we do this is by discussing financial topics that affect us all. I’m a big believer that our best client is an educated client so, today, I want to talk about something that’s all over the news . . . inflation.
What is inflation?
Simply put, inflation is the increase in the price of goods and services over time. What’s not quite so simple is how it can affect our lifestyle options and choices in food, housing, transportation, healthcare, travel, and so much more. Rising costs can also have a direct impact on the equity markets and our economy as a whole. This kind of uncertainty can be unsettling, and a lot of people are wondering what it all means for their financial futures and their families.
Is inflation a bad thing?
Well, it’s complicated. To answer that question, we need to look at the factors that influence inflation and try to understand what happens when they meet at the same time and in the same place. Let’s take a look at a few of the big factors that are affecting higher-than-normal inflation right now.
A Perfect Storm of Inflationary Factors
Factor #1: Wage growth
We’ve recently seen a significant rise in wage growth. We’ve especially seen the greatest gains in wage growth on the lower end of the economic spectrum, where people tend to spend their money rather than save it. When lots of people spend their money at the same time, demand for goods and services go through the roof, resulting in higher prices.
Factor #2: U.S. Savings Rates Increase
In addition to significant wage growth, U.S. savings rates went up during the pandemic— increasing by 0.4% this year alone! People were unable to travel or go to restaurants so they socked their money away. But now that the pandemic seems to be (hopefully) on its way out and the economy is opening up, many households are flush with cash! Middle and upper-class families are much more confident about their financial situations and are ready to invest in their homes: adding a pool, updating the kitchen, and buying new appliances. This kind of spending adds to the demand for goods and services, increasing prices even more.
Factor #3: Government Stimulus
On top of wage growth and savings rate increases, recent U.S. administrations and the Federal Reserve have injected massive stimulus into the marketplace. Simply put, this means the government has added trillions of dollars into the economy. Some were able to save and invest this money, while others had to spend it on necessities and/or luxuries. Either way, as we already mentioned, the more dollars people spend, the higher demand goes. But demand is only one side of the story, there are problems on the other side too, problems with low inventory up and down the supply chain.
Factor #4: Supply vs. Demand
When demand grows exponentially, it’s tough for inventory to keep up. As you’ve probably noticed, our supply of goods and services is very low across the board right now. Store shelves for many products are empty and deliveries are just as spotty. It’s been a huge problem in a variety of industries, but why is it happening?
Let’s start with the shipping of goods across the Pacific. Because of high demand, cargo ships are the largest we’ve seen in years, and they’re so loaded that it can take them up to 80 days to cross the ocean, more than double the pre-pandemic level. In other words, they are very late!
When those huge ships finally do arrive in commercial harbors, we don’t have nearly enough dock laborers to get those ships unloaded, causing yet another bottleneck. And even when they are finally unloaded, we don’t have enough truckers to transport all these goods to market to meet the high demand. There’s even a shortage of warehouses too.
These problems stack on top of one another, causing major supply problems.
So, when you put all of these factors together, it really comes down to a simple, old economic equation — the law of supply and demand! We have enormous demand bumping up against massive supply constraints.
In short, this all adds up to significant cost increases and rapidly rising inflation.
Unified wants you to know…
Times of inflation are not a time to panic. More important than reacting to high inflation is putting a plan in place that accounts for whatever the markets and the economy have in store. At Unified, we help our clients prepare for the future by taking a holistic view of their finances and designing a plan to align with their financial goals.
For me, as lead financial advisor at Unified, it’s important that we educate our clients about inflation and how it impacts them, their lifestyle, their families, their strategy, and their choices. That’s why inflation is an important element as to why you need a plan.
Please give us a call if you have questions about your financial future or if you know someone who could benefit from a fresh, holistic look at their financial picture. We would love to hear from you!
We second that!
An offer from your team at Unified for the ones you love.
I am pleased to announce that we now offer a complimentary, second-opinion service for the people you really care about.
When you introduce us to your friends, family members, and colleagues, we will take them through the same holistic experience you’ve had with us. This includes our discovery process to learn where they are now, where they want to go, and what the gaps are. Then we’ll evaluate whether their current financial advisors are positioning them to succeed financially for the long term.
If we feel the current advisors are not taking the right approach, we’ll evaluate whether Unified would be a good fit. Otherwise, we’ll recommend they stay where they are or point them in the direction of a more appropriate solution.
Please let us know if you would like us to contact someone you care about to schedule a second opinion. We will do our best to ensure they are well-positioned to effectively address today’s uncertainties.
Content in this material is for general information only and 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.
Financial planning is a tool intended to review your current financial situation, investment objectives and goals, and suggest potential planning ideas and concepts that may be of benefit. There is no guarantee that financial planning will help you reach your goals.
Likewise, it is important to remember that no investment strategy assures success or protects against loss. Past performance is no guarantee of future results. All investing involves risk which you should be prepared to bear.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Winthrop Wealth, a registered investment advisor. Winthrop Wealth and Unified Wealth Management are separate entities from LPL Financial.