Navigating Inflation: Reflecting and Deflecting

The word inflation with one hundred dollar bills made into an arrow

Inflation was a hot topic last year and still seems to be a lingering concern for many people. So, let’s review the current inflation climate and discuss how to prepare for the upcoming year. Before we dive in, let me explain what inflation is and how it affects…well, everything. 

Inflation is the rate at which the price of goods and services increases. As a result of inflation, the purchasing power or value of money decreases over time. We all witnessed this last year when inflation peaked at around 9.1%. I still cringe sometimes when I think about certain visits to the grocery store! 

The consumer price index (CPI) measures inflation by monitoring the average change in price paid for goods and services. It is classified into eight groups: food, housing, apparel, medical care, recreation, transportation, education and communication, and other goods and services. You may have heard the term core inflation, which attempts to pinpoint a more accurate read on inflation by excluding food and energy prices. 

As of November 30th, the average current inflation rate is 3%. Whew! Now, that’s a reason to celebrate! It seems that the Federal Reserve’s attempt to decrease inflation by raising interest rates is working. Now remember, this 3% is the national average. That number can vary depending on where you live or the products and services you use. 

If inflation reached 9.1% last year but is currently 3%, what is the Fed’s target for inflation? Well, the target is 2%. In fact, the average inflation rate over the last 30 years is 2.5%. So, if you choose to end the year with an optimistic outlook, I’d say Santa Claus came early. 

Inflation affects consumers, businesses, and the overall economy. Consumers, like us, care about inflation because it affects costs and standard of living. Businesses carefully watch the price of raw materials that go into their products and the wages they need to pay their employees. Inflation affects taxes, government spending and programs, interest rates, etc. It can happen at any time, and it’s not something you individually have control over.

 So, if you can’t control it, what can you do? Here are some of our favorite ways to encourage clients on how to combat inflation:

  • Look for ways to invest in high-yield, interest-bearing accounts for monies you need to keep liquid. Investing can be a good option to keep up with or even outpace inflation. 
  • Diversify your portfolio. Investing in different asset classes, sectors, and multiple industries could also help reduce the risk of inflation.
  • Avoid hoarding too much cash. As mentioned, in a high-inflationary environment, your dollars are losing their purchasing power. 
  • Review your budget. Shaving off the fat from your budget can help stretch your dollar when inflation is high. It might be time to kick some of those subscriptions to the curb!
  • Pay down/off debt. It’s always a good time to pay off debt, but even better when money is tight and interest rates are rising. 

Staying informed about inflation is necessary for navigating the financial landscape. While the current national average inflation rate of 3% signals a positive shift from last year’s peak, it could take some time to rebound from rate hikes over the past year and a half. The Federal Reserve’s target of 2% reflects a concerted effort to stabilize our economy. As we approach the upcoming year, adopting a proactive strategy is key. By applying the tips above, you can mitigate the impact of inflation on your financial well-being. Embracing these strategies can empower you to continue forward with perseverance and confidence.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Benchmark Wealth Management
5855 Ridge Bend Road
Memphis, TN 38120

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPIC.

The opinions voiced in this material are for general information only and are not intended to provide
specific advice or recommendations for any individual. There is no assurance that the views or
strategies discussed are suitable for all investors or will yield positive outcomes.
Investing involves risk including possible loss of principal.

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