on June 7, 2022
When you turn on the news lately, the buzzword on everyone’s lips is “inflation.” Reporters talk in serious tones about the rapidly rising rate of inflation and how it’s affecting the average American family. While today’s high inflation rate is certainly cause for concern, the media is often doing what they do best: drumming up fear to keep viewers glued to the TV or scrolling through their website.
Let’s take a step away from the sensationalism and talk about inflation from a practical standpoint. The fact is, we’ve been here before and we will get through this, just as we’ve pushed through other periods of high inflation in the past.
The ideal rate of inflation is about 2 percent from year to year, but the economy is rarely that consistent. Instead, it goes through natural cycles of expansion and contraction. Right now, the balance is off, with consumer prices rising at a rate not experienced in about 40 years. This could have been caused by too much money in the economy or by supply chain issues. Whatever the case, when prices rise that quickly, we feel it. We notice it at the grocery store or the gas pump. We see it in the price of clothing and electronics. It’s visceral, and it can naturally make us nervous.
However, as anyone born before 1970 can tell you, today’s price increases are not nearly as terrible as those experienced in the 1970s and early ‘80s. In 1974, inflation was over 12 percent; in 1980, it nearly hit 15 percent. At 8.3 percent, today’s rate of inflation pales in comparison.
If we were able to muddle our way through those periods of precipitous inflation, we can get through the current state of affairs. The key to successfully making it through is to NOT panic and make rational decisions, guided by your financial advisor. Now is not the time to pull money from the stock market. In fact, the market can be a great tool for keeping up with inflation, especially if you invest in companies whose prices will naturally rise during eras of high inflation.
This may also be a good time to negotiate a raise at your workplace. With the Great Resignation still underway, many businesses are desperate to hire more people and hang on to their current employees. In this climate, you are a valuable resource, and your place of employment would probably rather give you a raise than have to look for new talent to replace you. Leverage this opportunity!
Keep in mind: now is not the time to have too much excess cash. As inflation rises, the cash you have stuffed under your mattress or tucked away in a checking account is quickly losing value. This isn’t to say you should empty your savings account and toss all your money in the stock market (an emergency savings account is an absolute necessity!). Simply be aware that your excess cash isn’t doing you any favors.
High inflation has been common throughout the history of the U.S. The economy goes through cycles and, rest assured, we’ll eventually make it through this particular cycle. Until that time, consult your financial advisor to make prudent financial decisions and, above all, don’t panic.