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The Impact of Inflation and How You Stack Up...

The Impact of Inflation and How You Stack Up...

February 28, 2024

Inflation has been a tricky monster as we continue to see slowing CPI (Consumer Price Index) monthly prints.  Although it is slowing, it is still increasing ever so slightly in the wrong direction.  A decade or so ago, we were fighting to show signs of inflation in our economy by lowering interest rates and pushing dollars into our economy, now, we are struggling to tame it.  In this GoBankingRates article, we provided our feedback on inflation and what Americans can do to reduce expenses.

After the pandemic, we were hit with a supply shock that pushed prices higher around the globe.  The USA saw nearly double-digit inflation in a blink of an eye while some nations were 2 to 3 times that amount.  Supply was cut due to a global shutdown and the Covid-19 pandemic.  In basic Economics 101, when you reduce the supply of an item and the demand remains constant, the price will then need to adjust.

The current rate of inflation may seem as if it is normalizing to our long-term 3% rate, but many are not feeling it.  The real issue for us is the sticky nature by which inflation is persisting.  Wage increases are good as long as they are not offset by rising prices, and many are just seeing their wages increase slightly to offset a bit of higher food and energy prices.  

Wages are a sticky component of inflation being that higher wages traditionally bring higher cost of goods.  The company will pass those higher cost back onto the consumer which inturn increases the cost of goods and services.  What happens then, as cost increase, all other wages need to then move up to offset those cost which then makes other prices rise.  

So how much inflation is there?  That is a question we are all trying to grapple with at this time.  Many pundits suggest we need to rely on the Core CPI indicator, ex-food and energy.  They want to remove these inputs due to their volatile nature, however, the last time we checked, everyone must eat and everyone uses energy in some fashion whether to heat your home or transportation.  According to GoBankingRates, transportation cost rose by 9.5% in 2023, while housing cost increased by 6%.  Restaurants have gone up by 5.1% over the past 12-months which is in addition to the 8.2% in 2022.

This has led to a multitude of cost cutting measures by the consumer, from lowering the thermostat, to driving less, not only eating at home more but actually eating less.  Instead of taking those vacations, people are also choosing to stay at home via the "staycation" where they do more within the city they live.  

In conclusion, inflation is slowing down but not coming down.  It is imperative we right-size inflation quickly to combat rising prices and allow our economy to grow. If inflation remains high, jobs will be lost, interest rates will remain high and/or actually increase further, and the economy will be choked off to finally combat this persistent consequence of easy money and pandemic supply shocks.  Only time will tell on what happens next.

https://www.gobankingrates.com/money/economy/how-much-average-american-has-been-impacted-by-inflation-how-do-you-compare/

9i Capital group LLC is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.