Financial Planning

Inflation Can Be a Scary Word


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.

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 also are 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 Buffett 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.

 

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Investment advisory services are offered through BCJ Capital Management, LLC., an SEC Registered Investment Adviser.  Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

Source

  1. CNBC, May 12, 2021
  2. U.S. Bureau of Labor Statistics, May 12, 2021
  3. U.S. Bureau of Labor Statistics, May 12, 2021
  4. CNBC.com, May 3, 2021
  5. CNBC.com, April 28, 2021
 

DISCLOSURES

BCJ FG 21-62

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