NEWS FLASH! There’s a shortage of chicken wings, so a local restaurant now charges $26 for a dozen wings that were only $9 last year. This is my way to explain to my sons what “inflation” really means in terms they understand. Another reminder for them is when it costs $25 more to fill up their trucks, now that gas prices have risen about $1.25 this year (as I write this, oil is hitting a 7-year high).
Inflation is not a leading economic indicator. There must be other economic factors to create inflation. Today, those factors are high demand as our country comes out of recession, a continued labor shortage with limited production, and supply chain issues. One question is, how long will this last?
Earlier this year, the Federal Reserve and several economists forecasted that inflation would taper off in a few months as the economy restarted. However, it now appears that prices will not moderate until at least next year, according to Treasury Secretary Yellen. This can become a serious problem.
While “inflation” sounds like an innocuous term, lasting inflation can do great harm to those who live on a fixed income. Their income will buy fewer goods and services. Sudden and lasting price increases can lead to real financial hardships in this situation. It’s a major reason that most people need some growth of their financial assets to mitigate future expenses.
In other words, your assets should not stop growing when you retire. “Income for life” from any annuity or pension has benefits, but the weakness of those fixed payments becomes self-evident as the prices rise and purchasing power diminishes. In our view, you need to have at least moderate growth of your assets to address the issues of longevity and inflation.
In closing, I’m asked almost daily about my forecast of the financial markets, and I believe the best answer is that no one knows. However, by adapting your finances to your values and being prepared for the certainty of uncertainty, you can potentially improve your likelihood of success during difficult financial times. Or, as I tell my sons: plan today so you can afford to buy your chicken wings tomorrow.
Regards,
