Cents & Sensibility —
Inflation

Beth Peabody

“Tell me and I forget, teach me and I remember, involve me and I learn.”  — Benjamin Franklin

For the past several months this column has focused on specific ideas to assist with steps to ensure that your financial assets are kept intact as part of your estate plan. In addition, last month’s column provided suggestions for actions to consider as this year winds down. This month we will discuss headline news regarding inflation and how recent increases in this rate might impact your finances.

“Inflation.”

For many readers, this word is somewhat terrifying and calls to mind issues that surfaced in the 1970s when the prices for goods and services rose quickly and interest rates, in turn, rose to nearly 20 percent. Rising rates were blamed, in part, on failed oil policies — which caused supply shortages, which led to spiking prices. Remember the images of long lines of cars waiting for gas?

Inflation rates soared in the 1970s also because U.S. government policies proved disastrous for the economy, including President Nixon’s spending on policies intended to reduce poverty levels, reduce crime and improve the environment. Current proposed policies might be stoking fears of similar soaring rates and may be the reason “inflation,” as measured by the Consumer Price Index (CPI), is headline news today.

CPI measures the change in prices paid by consumers for various goods and services. There are various categories of CPIs reported, but in general, each is based on the prices of food, clothing, shelters, fuels, transportation, doctors’ and dentists’ services, drugs and other goods and services that people buy for day-to-day living. Data released at the end of October indicated that this measure showed that prices rose in September at the fastest pace in three decades.

All of us have been impacted by increasing prices this year for gas, groceries or dining out in a restaurant. In fact, prices of meat, poultry, fish and eggs in U.S. cities are up 15 percent since the start of 2020. These moves impact finances, especially if your income has remained the same or you received just a small raise.

However, unlike the inflation causes of the 1970s, the recent uptick in prices is a result of a strong economy, not a weak one, and increases in consumer demand for both goods and services. To meet these demands, employers are raising wages to keep current employees or to attract new ones. Companies are passing these costs onto consumers in the form of higher prices. In addition, supply chain hiccups are limiting inventories at a time when consumers are willing and able to spend more.

It is important to note that many professionals expect the recent increase in inflation to be temporary as supply chain bottlenecks ease and individuals return to the workforce. Therefore, do not let headlines tempt you into making short-term investment decisions that will impact your ability to meet your long-term goals.

Also, do not let the proposed changes to current tax laws impact decisions regarding your finances. Wait and review the actual facts before you make any long-term decisions.

Action item for November: Because tight inventories for toys, clothes and electronics may frustrate and disappoint consumers, do not delay your Christmas shopping this year.

Beth Stegner Peabody is CEO of Stegner Investment Associates, Inc., and a graduate of Sacred Heart Academy.

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