What Does Rising Inflation Really Mean for Consumers?

Clint Weeder

Business tax planning, investment advisory services, business valuations

Email

Chances are, you’ve been worrying about the potential for rising inflation since the pandemic — and what this means for your purchasing power. This may also have you wondering where you should put your money, and you’re not the only one. The truth is, rising inflation is here, and small businesses everywhere are asking for more guidance on the topic. 

In fact, the U.S. Bureau of Labor Statistics reports that “in July [2021], the Consumer Price Index for All Urban Consumers rose 0.5% on a seasonally adjusted basis; rising 5.4% over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.3% in July (SA); up 4.3% over the year (NSA).”

While rising inflation does present some unavoidable challenges for business owners, our team at McMill CPAs & Advisors is here to help you thrive. Here’s what rising inflation really means for consumers. 

THE CURRENT STATE OF RISING INFLATION

Since the pandemic, rising inflation has been nearly inevitable as businesses struggled with inventory and employees came in short supply for most of 2020 and 2021. Inflation has been most prominently observed in food, energy, homes, and new automobiles (all consumer necessities). However, many are promising that the current inflation should be short-lived and positively impact the bottom line in the long haul.

With a focus on CPI inflation, in particular, Forbes explains that “weird price movements were an inevitable side effect of closing down the economy to quash the virus, so they shouldn’t be totally unexpected. Luckily, they’re likely to be short-lived though may persist while the Fed works to get people back to work.”

Nancy Davis, the founder of Quadratic Capital Management, told the magazine, “I believe the Federal Reserve is more focused on the employment part of its dual mandate and will remain accommodative for as long as it takes to ensure the economy returns to full employment.” The so-called ‘easy money’ being pumped into the economy to encourage activity is likely to stay around, and “businesses (and their stocks) may continue to grow.”

Knowing this, the Fed has been clear that they don’t think inflation will stick around once people get back to work. Although this still leaves many wondering how long consumers will deal with the inflation spike in the meantime. 

HOW CAN YOU ACT PROACTIVELY?

When inflation kicks in, smaller businesses are often in a tighter spot than larger businesses that are more prepared for the ebbs and flows of inflation and purchasing power. The truth is when the same sum of money you have today can’t get you the same inventory it could previously, the value of that sum of money decreases — decreasing your purchasing power, as well. 

Right now, the U.S. is full-on experiencing this spike in inflation and shrink in purchasing power. Fortunately, there are at least two ways you can be proactive:

Stay In The Stock Market

When it comes down to it, it’s crucial that you stay in the stock market to protect your long-term assets. In many cases, inflation may hinder your stocks in the short term but can actually level out and be beneficial in the long term. Although it may go without saying, being careful not to make any drastic changes in your portfolio is important. 

Amy Arnett, a portfolio strategist at Morningstar, reminds consumers that “stocks can be good as a long-term inflation hedge but can suffer in the short term if inflation spikes.”

Mutual Fund Investing

When you invest in a mutual fund, you contribute to a pool of money alongside other investors, managed by a team of professionals looking to purchase securities. What your money is invested in depends on the type of mutual fund investing you decide to participate in.

More specifically, you’ll want to take a Passive Asset Class Management Approach. This approach emphasizes broad diversification and market returns in a controlled risk, low cost, tax-efficient environment.

Among this approach’s many advantages, you will quickly benefit from lower costs, lower portfolio turnover, greater tax efficiency, broad diversification/risk reduction, long-term perspective, control of asset allocation, passive asset class funds, and academic research (focus on the importance of asset class selection, not market timing or security selection).

TRUST A FINANCIAL PLANNER

There is no better time than now to put your trust in a financial planner to help guide you through the rising inflation and keep your business on top of the ongoing challenges the pandemic has put on you and the economy. 

McMill CPAs & Advisors has been working hard for individuals throughout Northeast Nebraska looking for comprehensive financial planning assistance, making sure you and your finances are prepared for inflation. There’s nothing more important than protecting your savings and assets — and you don’t have to go at it alone. Here at McMill, we understand the challenges and fears that come with rising inflation. We also know the best strategies for getting through these uncertain times and keeping your small business on track. To gain more insight and resources into what you can expect from rising inflation, contact us today and follow our webinars and blog for more tips.