Finding Hope Despite High Inflation

Wednesday, June 15^th, the Fed raised rates by another 0.75%. This is the largest rate hike since 1994 and indicates how seriously the Fed is taking the ongoing inflation. Why did they raise the rate again? Friday June 10^th, Consumer Price Index (CPI) year-over-year numbers, which measure inflation in the US, were released. Prices advanced 8.6 percent from the previous year. The Core CPI, which strips out food and energy, rose 6 percent year-over-year, also exceeded estimates. So you can see that food and energy are two of the biggest contributors to the increase…but then I bet you knew that already.

 

Why is inflation so persistent?

Many of the factors driving inflation were caused by the pandemic and are still returning to normal. One example is the number of operational oil rigs. This number decreased during the pandemic due to less demand since everyone was working from home and people weren’t travelling as often. It has taken a while for the oil industry to rehire staff and get these rigs back online again, but we are nearly back to pre-pandemic numbers of operational rigs.

Of course, high fuel costs affect many other industries in our supply chains which get passed on to consumers paying higher prices for all kinds of products. Massive government pandemic spending added to the problem. Other inflation causing factors are out of our control such as the war in Ukraine. How that situation develops, or resolves will have an impact on inflation. In our complex, interconnected world, economic changes in one region or industry can have an outsized impact.

 

Inflation has been worse before

We tend to focus on recent events in our minds, something called “recency bias.” It can be helpful to remember that our situation is much better now than the high inflation of the 1970s. Consumers spend less of their income on food and gas and our country imports far less oil than the 1970s. There are plenty of available jobs and unemployment is low. We are in a significantly different situation now.

Yes, inflation is high right now. I see it every time I fill up at the gas station or go grocery shopping for my family. It feels bad to keep paying more each time and causes stress over family finances. As our Chief Investment Officer Hillary Sunderland spoke about recently, we do not think the current rate of inflation is sustainable and that we will see easing of prices in the second half of 2022. Industries from oil extraction to microchip manufacturing that were impacted by the pandemic are finally returning to normal production. The Fed is working hard at achieving a “soft landing” to control inflation and protect economic growth. We know inflation is hitting many of you hard, especially those on a fixed income, our hope is that better days are ahead.

 

What can you do now?

While the inflation rate is certainly something you don’t have control over, you are not helpless in addressing how it impacts you and your family. For many of you, this is the perfect time to get a realistic view of where your dollars are going. Developing or revising a budget, or spending plan, can help in three ways:

1. 1. You will see where your money is currently being spent. When we help clients develop a spending plan they often discover things that they are spending money on that they don’t use or no longer value. Things like subscriptions or other services that are underutilized. You may identify areas of discretionary spending that you would like to change.
   2. You will control how you spend your money. A spending plan gives you the freedom to align your spending with the things you really need or value. It is empowering to take control of your finances in this way.
   3. You will be encouraged. Focusing on things outside your control (inflation) leaves you feeling helpless and discouraged. Focusing on things that you can control (your spending) gives you hope and encouragement.

“Budget” doesn’t have to be a dirty word if it gives you control over your spending and provides peace of mind.

Our hope is that inflation will begin to decrease over the next few months. In the meantime, if you want to get a better handle on your finances, please reach out to one of our Christian financial advisors. We love equipping our clients to take control of their finances and grow in their role as stewards. Not only can this help you navigate this inflationary period, but it can set you on the right track for your long-term financial goals as well.