Is Inflation a Real Problem Today?

Inflation has been the buzz word on the news, radio, and in shareholder meetings around the globe, and rightfully so.  The annualized rate of inflation in the U.S. has been generally muted for the last three decades.


In fact, inflation has been so low for so long that most of us can’t remember what it’s like to see the prices of goods and services rise in a way that we actually notice.  Well, it seems change could be on the horizon.


While many have been concerned about government debt for a while now, the amount of money we’ve printed in this country over the last two decades is absurd.


If you want a good visualization, CLICK HERE.  Although, I warn you… what you’ll see is eye-opening, to say the very least!


Why is this bad?  Well… the more money we print, the less all the money is worth.  It’s not too different from the fact that, years ago, you would buy a half-gallon of ice cream in the freezer department while today, you’re lucky to get a pint (and you’re paying more for it!).


Instead of tricking you with the size of the ice cream container, you’re being tricked by how much each dollar you spend is really worth.


Take a look at the depreciation (decline in purchasing power) of the U.S. Dollar below.  Due to all the inflation created by the Federal Reserve, one dollar back in 1913 is worth less than 5 cents today.  Said another way, the same dollar you hold in your hand today would’ve been worth $26.14 when the United States started collecting taxes!


Purchasing-Power-of-the-US-Dollar-1024x536 Is Inflation a Real Problem Today?


Here’s another way of looking at it, below.  My friend Mike Carr posted this chart on Twitter and it shows how we’re experiencing the highest inflation numbers since 2009.  In addition, we’re seeing it rise with relatively strong velocity, so this is something that we’re going to have to pay attention to.


Mike-Carr-Inflation-1024x390 Is Inflation a Real Problem Today?


You might find it interesting that “inflation,” which is measured by Core CPI (Consumer Price Index), does NOT include food or energy costs.


So just for fun, I thought I’d include the chart below, which compares Core CPI to the inflation many of us are feeling when we pay our gas bill, fill up the tank, make a trip to the grocery store, or go out on a “date night.”


Inflation-with-Food-and-Energy Is Inflation a Real Problem Today?


The good news is this:  While we’re definitely starting to experience the beginning of what could turn into an “inflation problem,” it’s still early yet.  When compared to other countries around the world, we’ve inched our way into the top-third (in the table below), but we’re still a long way from the hot mess in South America.


Inflation-Around-the-World Is Inflation a Real Problem Today?


If there’s one thing for sure, not everything is going up in price.  No matter where you shop, there is no shortage of hand sanitizer available for the taking, and at rock-bottom prices!


hand-sanitizer-2 Is Inflation a Real Problem Today?


Inflation is definitely starting to become a concern, but much more important than rising inflation is what we need to do in order to ensure we:


  1. Keep our profits, and
  2. Rotate, and re-position our retirement portfolios to take advantage of it.


Historically speaking, the types of investments that tend to do well in inflationary environments include stocks, commodities, and in the case of a falling U.S. Dollar, international stocks could look particularly attractive, as they did between 2003-2008.


The good news is that no one will go to bed on a Friday night, enjoy their weekend, and wake up Monday morning with +2,000% inflation.  These trends are a slow process and because we’re paying attention, we can take the steps necessary to mitigate the potential “negatives” that might occur as a result of rising prices.


Till next time…


Categories: Adam Koos, CFP®, CMT®, CEPA, Market Commentary

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