Insights + Resources

Inflation Can Be a Scary Word

May 21, 2021

Inflation
There are compelling reasons to adopt a wait-and-see approach

Inflation can be a scary word for people who are retired. It’s code for “prices are going up, but my income may stay the same.”

The most recent reading on consumer prices put inflation back into the conversation. The Consumer price Index (CPI) rose 0.8% in April 2021 and jumped by a greater-than-expected 4.2% year-over-year.1

April’s increase was led by a 10% increase in used cars, with additional pockets of increases, notably in transportation services and commodities. Core inflation, which excludes the more volatile food and energy prices, was up a more modest 3.0% from April 2020.2,3

While there is good reason to be concerned about inflation, there are also compelling reasons to adopt a wait-and-see approach.

Federal Reserve Chair Jerome Powell says today’s inflation will be transitory and attributed to the post-pandemic economic expansion. But others are not so certain. Warren Buffet has said price increases are more structural, meaning they are becoming part of the prices we pay every day.4,5

Inflation is just one factor considered when creating a portfolio. If inflation starts to trend higher than expected for a period of time, adjustments can be made. For example, if the Fed chooses to raise interest rates to help manage inflation, it may be appropriate to review a portfolio’s bond holdings. Longer-term bonds can be more sensitive to interest rate changes.

We are keeping an eye on inflation and understand the concerns of our retired, or soon to be retired, clients. We work with professionals who monitor the economy and who can help  interpret the recent government reports. But if inflation is starting to worry you, please reach out. We’d welcome the chance to hear your thoughts.

For more insights and resources, be sure to sign up for our Weekly Market Commentary. Follow our YouTube channel where we regularly post our Epic Market Minute videos. Follow us on LinkedIn, or like us on Facebook. And as always, please don’t hesitate to reach out to a dedicated service professional at Epic Capital.

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