In upcoming memos we’ll try to answer some of the most common client questions we get. Everyone right now wants to know if inflation is a real issue. Much like the scars The Greatest Generation carried from growing up after the Great Depression, the current retiree / investor class still has PTSD from the Carter-era inflation of the 1970s. Also, the inflation bogeyman has been picked up as a political weapon by many commentators.
Our view is that for now, the price increases we are seeing are the mostly result of supply-chain bottlenecks and stimulus programs that reacted to the COVID pandemic. We are already seeing some prices start to normalize, but fear that takes hold can be hard to let go. Labor cost data, which is highly correlative to headline inflation, is indicating that inflation may not be a real issue in the short term and that price issues that pop up may indeed be “transitory”.
We are not naïve to the longer-term inflation outlook. The money printing that has occurred since 2008 (or since 1971 depending on who you ask) is certainly a recipe for inflation as too much money chases too few goods. However, and we state this carefully, this time might be different, at least for awhile. Remember that the massive technology and productivity changes we see in our daily lives are profoundly deflationary. Just think of all the things that your smartphone does now for free that you previously paid for. As the Federal reserve and other monetary authorities print money to prop up asset prices, it may be a sign that they are trying to fight deflation. This will be interesting to watch in the coming year or so as the sugar-high of pandemic stimulus programs wears off and economies fight to rekindle themselves without so much monetary support.
Jared Walsh CFP®, CPA
Shawn Goetz, CRPC®
Reservoir Wealth Management