Investor Minute
How Inflation Helps You Refine Your Priorities
The recent high inflation numbers have cooled a bit. Last month the Consumer Price Index (CPI) data release indicated prices are increasing at a 5% annual rate. This was a significant decrease from last summer’s spike of 9.1%.
The CPI is based on an amalgamation of prices paid by consumers in 243 categories across 32 geographic areas. This complex calculation of 7,776 variables results in a single number. It’s fairly safe to say that the CPI is a very broad measure which encompasses the experience of hundreds of millions of people.
Depending on where you live and how you spend, your personal inflation rate is probably quite different from the published CPI data.
Although this recent easing of inflation is welcome, the current rate is more than double the average over the past ten years.
You may have experienced surprise and even dismay at the jump in prices when you’ve gone to make a major purchase, such as a car—or even just eggs at the grocery store. Inflation is emotionally jarring because it challenges our concept of what’s personally affordable.
Its unpredictability is also unsettling. Joe Duran, Head of Personal Finance at Goldman Sachs, says, “Inflation can be a major source of financial anxiety because we do not know how bad it will get or when it will end.”
Duran gives three things to do to help lessen that anxiety.
1. Don’t panic. High inflation is not likely to last and will not affect everything. “Don’t be reactive,” he says, “but have plans that are adaptable to changing circumstances.”
2. Focus on what you can control. You can’t make prices come back down. You can’t control stock market volatility. But you can control your personal habits. Duran says, “Managing spending is a powerful lever you have complete control over.”
3. Be willing to compromise. Life is full of trade-offs. There are things we’re willing to forego in order to get the things we really want. Inflation just makes those choices a little more stark. Take a fresh look at your values and priorities and ask yourself what you’d be willing to trade to achieve them.
Inflation is corrosive to any economy, which is why the Federal Reserve is so committed to bringing it under control. However, their prescription of higher interest rates is not without side effects. And we should expect to see continued bouts of market volatility as companies and investors adjust to a tighter money supply.
Emotions caused by high inflation not only make life less enjoyable, but they can cause investors to take actions that are likely to hamper their success in the long run. The best way to keep those emotions in check is by having a plan.
If you feel like you need to refocus your goals, or just have questions about saving for retirement in a period of high inflation, talk with your trusted advisor. Click this link to schedule a free call with us today.