Uncle Sam tells us that the current rate of inflation is roughly 1.2 percent compared to the 50-year average of 4 percent. That’s a nice number, but does anyone really believe that we have next to zero inflation? Will it be that low a year from now?
Inflation has begun to reveal itself in a number of obvious ways. We’re seeing it at the grocery store…in clothing…at restaurants…from healthcare providers and insurers…and yes…at the gas pump. In fact, inflation is significantly greater than suggested by the Consumer Price Index (CPI). It’s important to understand that these government figures are low for a number of reasons, including the large housing component.
Where will inflation be a year from now? No one really knows, but it appears that the U. S. economy is gradually gaining strength; moreover, global economic activity is strong, thereby putting upward pressure on commodity prices. Look for 2.5 percent CPI by yearend…much, much higher if Middle East political developments disrupt oil supplies.
Longer term, local, state, and federal government deficits are likely to further stoke the fires of inflation. Think about these three questions:
- How will inflation affect our household cash flows?
- As an investor, how can I mitigate or even benefit from the impact of inflation?
- If I own a business, how can I make my products and services compelling for those more limited dollars?
Talk to your wealth manager or financial advisor – there’s never been a better time!