Inflation is not entirely gone yet. BUT – it could be worthwhile to try talking about it in the past tense and examine what enduring inflation has dealt – both negative and possibly positive – to spenders, savers and investors.
For one thing, inflation has gotten our attention! There is not one friend or client with whom I speak – those with money to burn and those with stricter budgets – who has not been shocked by food prices the past two and a half years. Are there any “silver linings” to this situation? What have been the worst consequences of inflation?
Worst consequences:
- Harsh inflation has forced increased levels of spending and in lots of cases has led to increased credit card balances and overall household debt.
- Car and truck prices, a major and necessary spending item, definitely rose dramatically (possibly also affected by undesirable government mandates for electric cars… which may now be a thing of the past)
- Interest rates needed to be increased sharply to fight increasing inflation, which led to heavier mortgage, car and credit card payments.
Silver Linings:
- Higher interest rates were also a silver lining positive to savers
- Perhaps the painful experience of inflation has led to needed changes in shopper behavior overall?
- Families and individuals may have found themselves unexpectedly in shock or reacting to higher prices by looking at and re-evaluating various spending categories?
- The timing of major spending decisions may have been adjusted or put off?
- Possibly a handful of smarter financial decisions have resulted – including consulting with a financial adviser on the timing and size of major and minor purchases or renovations.
- Cash on hand may have grown as part of a defensive, forward-looking strategy or plan – invested in safe, interest-yielding instruments.
Before the depths of inflation in 2022 and 2023, there had been a (at least) 25-year, if not nearly 40-year, period with very, very low inflation. Excessively low interest rates for nearly 14 years added to increased and riskier spending. Inflation dealt a severe blow to this spending. The aftermath of inflation – which the Federal Reserve is trying to usher in – may leave households slightly stronger and smarter in the long-run.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.