Long time readers of TGIF 2 Minutes may remember the above photo* which accompanied a February 2018 post describing how inflation feels.
Earlier this year in March, a TGIF 2 Minutes post titled Get Ready for Corona Inflation described what could happen if government spending and stimulus continued unchecked. This week’s reported economic numbers underscore reality: a three-month continued surge in inflation that in several categories has not been seen since the early 1980’s. Lots of people reading this post may not have even been born in 1981 – which was the last time that restaurant meals and food prices rose this fast. To the younger generation, inflation may be learned painfully early in their careers. Inflation hurts EVERYONE, most of all the middle class and low-wage workers. For the wealthier, inflation gradually eats into returns on savings and investments.
Here is the list of items where prices have risen at a disturbingly high pace in the past 6-12 months:
- Housing – both house prices and rents
- Transportation – cars, trucks, SUVs
- Air travel
- Food – both at restaurants and grocery stores
- Gasoline, electric, and piped gas service – affects low wage workers the most.
- Wages – the expense to business owners of all sizes if workers are even available.
After-inflation wages are down for multitudes of workers at most points on the income spectrum. If prices rise more than wage/compensation gains, then OUCH. Here is a summary from The Wall Street Journal from this past Tuesday’s inflation report:*
- Consumer prices rose 5.4% from a year earlier, same pace as in June [and] highest annual pace since 2008.
- Prior to June & July, May consumer prices rose 5%.
- The average pace of inflation from 2000 to 2019 was [a mere] 0.2%.
- [The current] worker shortage is also contributing to supply-chain problems…raising rates for shipping…and causing delays…to consumers.
Nearly everyone looks forward to their wages and compensation rising (my comment) but the data says, “Labor costs are rising as businesses have to raise wages to attract workers who can make more unemployed. The result: Higher prices.”*
Investing thoughts: One of the only investing defenses against inflation is to invest or increase investment in stocks for the long-term in order to keep up with rising prices for goods and services. This increases the risk in any portfolio. Bond prices – thought to be “safe” – typically decline in reaction to inflation. Cash loses purchasing power in inflationary times and in the long-term in general. (Remember: cash is still king for short- and intermediate-term purchases and peace of mind.)
A wise investor is paying attention and monitoring asset allocation, cash levels, and long-term savings decisions to keep up with the times.
*WSJ.com. August 12, 2021.