Inflation – the Unwanted Houseguest
Inflation is the increase in the cost of goods and services passed on to the end-user or consumer. The root cause of inflation is greater demand than supply for these goods and services. As any student of economics or business would tell you, the greater the demand combined with a decrease in supply causes prices to rise, hence we have price inflation. Excess liquidity (money) added to this inflationary cocktail brings an even greater hangover. This is where the investment committee of the High Net Worth Advisory Group believes we are today. We have started to see the impact of excess liquidity, causing greater demand due to the multitude of shutdowns on the global supply chain due to Coronavirus, limited supply, and a substantial increase in prices. If you have been to the gas pump, grocery store, building or renovating a home, buying a car, eating out in a restaurant, or purchasing any must-have items for your closet you are starting to see an increase in prices. This increase in prices means your dollar will not go as far as it once did and you lose purchasing power. With less purchasing power you find that your paycheck can no longer buy what it used to and you start to make changes in priorities of how you spend your money.
So how does one combat inflation? The answer is not that simple. The only way to slow inflation is to slow demand or substantially increase supply. Inflationary pressure takes its time to move in and then out of an economy. With pent-up demand from consumers who have been quarantined for the last year combined with the current stimulus spending in Washington DC (and other countries around the world) at record levels and a low-rate friendly Federal Reserve all place us in a bind as to exiting the inflation roller coaster. The Federal Reserve likes to use the political term “temporary inflation”. As I talk to more and more of our clients who own successful businesses, they do not see it that way. They see a large increase in prices and small availability of the goods they need to produce their products. Combine that with a reticent workforce who are being paid just as much to stay home versus coming to work through unemployment add-ons and even the availability of labor becomes an issue. It takes a much higher wage to get someone to come to work if they are being paid an equal amount to stay at home. So increased cost of goods, increased costs of labor, limited availability of commodities, and excess demand equals greater inflationary pressure. “Temporary” is a feel-good political term so as not to scare the markets. I remember the days when inflation was in the mid-teens as I was a young financial advisor selling tax-free bonds at 12% and nobody wanted them thinking rates were going higher. Inflation is good for savers due to higher rates but not great for investors.
During our reviews with each of you, we will be discussing inflationary pressures as well as a multitude of issues we are watching on your behalf that may be coming out of Washington DC as regards to higher taxes. The Piper must be paid at some point. Likely that it will be coming in the form of higher taxes on both the corporate and individual level. We never panic, just watch and listen carefully as we separate the news from the noise and help steer your family’s finances in a way for you to reach your goals with the least amount of stress possible.
Stay vigilant in your health and we will stay vigilant with your finances!
It is our honor and pleasure to serve you,
The High Net Worth Advisory Group LLC
The High Net Worth Advisory Group, LLC is registered as an investment adviser and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. This is not a legal or financial recommendation and should be used for informational purposes only.