On this week’s episode of Tape Talk we explore the state of inflation in today’s economy. After years of fairly low inflation, the Fed has started raising interest rates to try and mitigate the potential for too much inflation and to stay ahead of it in the future. We consider this week what inflation is, how the Fed’s interest rate hikes might affect it, and how inflation affects an investor’s financial plan.
Simply put, inflation is the increase in prices over a period of time, typically measured year-over-year. Generally, a bit of inflation can be a good force in the economy, but too much (or too little) can be a recipe for disaster. This is why the Federal Reserve seeks to promote a healthy level of inflation in the economy. We take some time to break down how inflation manifests itself in everyday life and the signs investors can look for to determine where it currently stands and where it might be headed in the future.
Rising Rates and Inflation
Typically, the Federal Reserve raises interest rates in an effort to control or curb inflation. By effectively reducing the amount of cash available in the financial system they attempt to decrease demand and keep prices stable. However, the economy is a fairly dynamic environment and simple logic doesn’t always work in life as it does on paper. We’ll take some time to ponder if, contrary to popular belief, interest rate hikes might actually spur inflation prior to curbing it. Could it be that the Fed’s favored tool to combat this elusive force of economics actually helps spark it?
Inflation and You
As prices rise so often do wages which helps mitigate the effect of inflation on consumers’ pocketbooks. However, what if you’re affected by only a part of that equation? For many retirees or those approaching retirement, higher than expected inflation could be a serious detriment to retirement expectations. Find out how you can incorporate inflation considerations into your financial and retirement plan. When you do so, you may just find that a small change can have big impacts!