Up, Up and Away – What is Causing Inflation?
by Trey Finch
Americans are trying to remain hopeful as inflation weighs heavy on our minds, and bank accounts. According to a Gallup poll, almost eight out of ten Americans anticipate inflation to rise over the next six months. Citizens and economists are still trying to make sense of public opinion, wages, prices, and inflation.
As prices climb at the quickest pace in about 40 years, Biden says fighting inflation is a top priority as prices are still stunning consumers.
The same poll shows that U.S. citizens typically predict rising inflation. At 79% of those surveyed, this reveals that the current expectation is the highest the group has measured in history. The last record set was in September of 2005.
So, what does this tell you about inflation?
- It’s a common occurrence in the U.S. based on history, policies, and politics.
- It can be planned for with your financial advisor in Brentwood, TN.
With the loss of loved ones due to COVID-19, the severe symptoms of the virus itself, social distancing, lockdowns, mask mandates, and vaccine requirements, you surely have felt the impacts.
On February 28, the mask mandate was lifted. The CDC now suggests that 70% of Americans can stop wearing face masks. As for Tennessee, Gov. Bill Lee did not impose a statewide mask mandate in the first place.
U.S. citizens report being more preoccupied with the coronavirus pandemic and government agendas than they do with inflation. Is that because we feel the pandemic caused inflation? That is a fair case that government officials will side with you on, as opposed to a policy being the cause.
In attempts to fill the economic void and synchronize global recovery due to COVID-19 and vaccine rollouts, we are bouncing back slowly. While it’s hard to say who is right or who is to blame, a simultaneous confluence of unique occurrences may have caused inflation:
- Supply chain disruption
- Government spending
- A synchronized global recovery
- Economies re-opening
Whatever the case, you too can bounce back financially with the support of fiduciary financial services near you.
Rebounding from layoffs and furloughs, a large number of employees are getting back to work. While this helps us see the light at the end of the tunnel, wage is still a concern.
Tennessee Unemployment Rate
According to recent data from the Department of Labor and Workforce Development (TDLWD), Tennessee recorded another drop in statewide unemployment to kick-off 2022. The last reported seasonally adjusted unemployment rate was 3.5% for January 2022. Do you or someone in your family need a couple of resources for Tennessee job openings?
Jobs at a Glance on a National Scale
Omicron waves are reflected in this New York Times job report on a national level. What’s found is that companies are hiring more than expected. The Bureau of Labor Statistics reported that total nonfarm payroll employment rose in February by 678,000, and the unemployment rate decreased to 3.8%.
Job growth expanded with gains seen in:
- Leisure and hospitality
- Professional and business services
- Health care
Wages for Employees
Inflation becomes an even bigger problem when prices continue to rise while wages remain the same. From a trio of top economists, data shows that average national incomes, including what people earned at work and from their investments, have outpaced inflation, with increases for the bottom half of earners rising by over 10%.
Persistent inflation could begin to hit economic growth, an essential factor underlying pay packages and investment gains. And now, with the Russia-Ukraine war, this looks to only prolong supply-chain issues as energy costs rise. Economists say that we are not likely to have wage-price inflation as in the 1970s.
Inflation Reaches a 40 Year High
The United States Central Bank, otherwise known as the Federal Reserve, tries to maintain the inflation rate at around 2%. Their role is to provide the nation with a safe, flexible, and stable monetary and financial system. But since strong consumer demand has collided with pandemic-related supply disruptions, they are struggling with that sole duty. Inflation has reached a new high in four decades, at 7.5%.
Due to the quick decline in purchasing power, investment advisory services are being sought out in Brentwood, Tennessee. It’s reported that among those most affected are lower-income households that are less able to maintain rising prices. Although you may not fit into this category, it’s helpful to stay informed of investment decisions.
While just 10% of the country says inflation’s effects are so severe that their standard of living has been impacted, about 50% say higher prices are harming their finances in one way or another. Raising prices are common for these top ten commodities:
- Heating costs
- Dining out
- Computers and electronics
- Medical care
Keep in mind this rule of thumb: As inflation rates rise, interest rates are likely to rise. Why? Because lenders demand higher interest rates as compensation for the decrease in purchasing power of future money they will be paid.
Alternatively, when inflation falls, interest rates are likely to decline. This creates less space to cut interest rates in order to boost employment during an economic downturn.
People of the world are still in shock at the Russian invasion of Ukraine. If you are still wondering why this geopolitical uprising is occurring, Putin has repeatedly described his efforts as “an attempt to de-Nazify and demilitarize Ukraine.” He reinforces that the government in Kyiv are Nazis.
Since Russia and China cemented economic ties before the Ukraine invasion, our U.S. commerce secretary warns the Chinese that their companies aiding Russia could face U.S. repercussions. The Semiconductor Manufacturing International Corporation is of specific interest to shut down, as well as other technology exports.
These moves are aimed to cut off Russia from the critical technology needed to power its economy and military. The U.S. does threaten to block Russian sales of oil and gas, which is the country’s principal export. But has only cut off access to the World Banking System.
Will these tactics be enough to stifle Putin and his efforts? We will have to watch the global market in order to stay on top of how this turmoil impacts us here at home.
What Can You Do About Inflation?
Three actions can help tread the water of high inflation and an interest rate increase:
- Comparison shop: look for more affordable options as prices increase
- Cut your spending: don’t stretch your budget too thin
- Invest: a well-diversified portfolio can help
By understanding potential inflation impacts, you can stay empowered to make smarter money moves. Registered investment advisers can help you through various investment and financing services. By planning ahead for trying times, rate hikes, and inflation, wealth management can become your new normal.
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