Inflation has a funny (not “haha” funny) way of changing consumer and market behavior. We are presently seeing these changes play out in the economy and stock and bond markets. Time for the rocket photo again, which equates rapidly increasing prices with a rocket launch.*
In conversations with clients and friends in every segment – younger newly-employed, mid-career folks, parents, single people, workers at the tops of careers, those not in the workplace, heads of families and (mostly) comfortably retired folks – every one of these groups reports noticing inflation in their daily lives. This fact is unlike any time in my 35+ year professional life…and then some.
In the meantime, stock markets are still near all-time highs with the first signs in over a decade of meaningful, prolonged pullback (precisely how prolonged and how much of a pullback is unpredictable). Inflation has been mentioned by all kinds of experts and researchers as one of the primary culprits of the declines.
In a more specific instance PayPal, a global leader in online payments since around 2003, has suffered a staggering over 50% decline from its 2021 stock price highs with several factors to blame, one being that inflation has caused less online shopping and therefore less use of fee-based PayPal.
Inflation, and one of the primary ways a financial system can fight inflation – namely, a central bank raising interest rates – has decreased the risk-reward of owning (already over-priced) technology growth stocks leading to recent marked declines in the tech sector and beyond.
Not to mention the decimation of the middle-class home balance sheet! Wealthier households are noticing cost increases and supply changes as well. Think about feeding a family of 4 (or more!) with the nearly doubling in the price of beef. Today a friend reported her daughter cannot find chicken at the grocery store – or even Costco! It seems consumers are switching away from beef toward cheaper priced meats and meals.
Increases in worker wages has been one of the primary reasons for upward price spirals in food, restaurant tabs, fuel, and discretionary items. There is the opposite of a silver lining to increased basic wages, as all or more of a wage increase can be eaten up by increased consumer prices.
Time will tell where the current inflation situation takes consumers and markets. Life going back to “normal” or new normal after a pandemic will be a factor as well. Cash and savings are key. The fact remains, inflation is no joke.
*Original post, 2018, A Word on Inflation ; Photo Credit: Jared Haworth. SEE ALL at https://wehadtoday.com/jared/falcon-heavy/ Prints available.