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People have been feeling the effects of inflation in nearly every aspect of their lives. Everything from food to gas to home repair products seems to be increasing with each day. So, what caused this inflation to occur and what is it affecting most?<\/p>\n
Inflation has found its way to oil and gas prices, food, rent, and travel the most. To put that in perspective, the 2022 June Consumer Price Index (CPI) numbers give a sense of how inflation has affected us.<\/p>\n
Meats, poultry, fish, and eggs, saw a\u00a014.2% increase year over year, likely exacerbated by supply chain shortages and the effects of COVID-19 lockdowns and stimulus. Gas saw a 30.2% increase year over year due to similar issues but was compounded by the Russian-Ukrainian conflict. In addition, airline fares increased 37.8% due to supply chain shortages and COVID-19 travel bans. And now, inflation in rent prices is showing that these costs make their way around the market, pushing rents and real estate prices even higher.<\/p>\n
In the context of your retirement, this likely means you\u2019ve had to adjust your budgets and spending patterns to make sure you don\u2019t over-burden your retirement income. You may have re-considered travel plans, cut back on eating out, or avoided certain grocery items that have seen large price increases.<\/p>\n
With this inflation came a hefty amount of market volatility. If you\u2019re approaching retirement, you may have felt the effects of the recent market downturn in your market-exposed investment accounts. So, how does this all tie together?<\/p>\n
The Federal Reserve has raised interest rates aggressively to combat the effects of inflation, citing inflation as a major threat to the economy. However, this also comes at the cost of slowing the economy and inducing a declining stock market. \u00a0The Fed cites an already strong labor market, but if inflation sticks around and interest rate hikes continue, will it induce stagflation? While the Fed does not believe stagflation is a heavy concern, some economists predict that it could be a possibility.<\/p>\n
Stagflation is the concept that inflation accompanies a recession, rather than trading one for the other.\u00a0 In the 1970s, among other factors, labor unions threatened profit margins for businesses, creating layoffs and a slow economy. But high-interest rates were needed to combat the inflation caused by oil embargos and government assistance was also needed to support the laid-off, inflation-affected population which created high budget deficits. Add in geopolitical conflict and the collapse of managed currency rates and you have stagflation \u2013 persistent inflation accompanied by a recession.<\/p>\n