Prices are skyrocketing everywhere you look. A few days ago, within a short window of time, I heard three different people look at an item and express that the price was ridiculous. I understand people being shocked and dismayed, but they shouldn’t be surprised.
Contrary to what the Federal Reserve initially reported, this inflation is not transitory. To the Fed’s credit, that prediction was later rescinded. Because there are a many reasons the prices of goods and services are all over the board. It’s not just supply chain issues.
Remember, during the height of the pandemic shutdown, Uncle Sam printed tons of money and blithely put it into the hands of the people. The intent was to help households survive and stimulate the economy.
As it turned out, the Federal Reserve pumped $3 trillion into the economy in 2020. That’s an incredible 20% of all U.S. dollars. And an increase in money supply is one of the main causes of inflation. So don’t be surprised if prices escalate well into the future.
I suggest we get used to prices moving every which way, with the predominant trend being upward. I don’t believe we’ll see the double-digit inflation of the Carter years, but to think prices will return to pre-pandemic levels is unrealistic.
Instead of complaining about increasing costs, you need to figure out what to do about it in 2022 and beyond. But as the great Yogi Berra once said, “It’s tough to make predictions, especially about the future.”
I think prudent planning requires a combination of price awareness and basic math skills. Awareness simply means being cost conscious. When you pick up an item, ask yourself if you really need it before putting it into your cart. And do you really need to wait in a long line at the drive-through window to get an expensive cup of coffee? Or is it just a habit?
Commit yourself to being a better consumer in 2022. Put that bumpy cake back on the shelf. Brew your own coffee and take it along in your adult Sippy Cup.
Basic math skills are also a part of the equation. For the past ten years, inflation was generally considered to be under control at just below 2%. But even with a relatively low inflation rate, you need almost $118 today to buy what $100 bought ten years ago.
From 1981 to 1991 the inflation rate was just over 4%. Projecting that number for the next ten years you’d need almost $150 to buy what $100 buys today. That’s nearly a 50% increase!
Surviving and thriving in the years ahead will require you to be financially astute as both a consumer and an investor. As costs increase, it will become more and more important to have a plan. For example, if housing prices or mortgage rates rise, you might not be able to afford as much house as you could in today’s low interest rate environment. So you might need to set aside more for a down payment.
Similarly, as education costs continue to rise, you may need to save a bit more for a child’s college tuition. The reality is that you shouldn’t be shocked by higher prices; you should be prepared for them. I’d plan on it.
Securities offered through LPL Financial, Member FINRA/SIPC. E-mail your questions to kenmorris@lifetimeplanning.com. Ken is a Registered Representative of LPL Financial. Ken is Vice-President of the Society for Lifetime Planning. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. Investing involves risk including loss of principal. No strategy assures success or protects against loss.
