On Monday, CNBC ran a story titled: “Americans’ inflation fears reach a fever pitch as consumer prices rise.” The tenor of the piece matches much of the inflation conversation these days — it’s a fever-pitched warning of the effect on prices and the value of cash as the economy recovers from the massive impact of Covid-19. CNBC cites the Federal Reserve Bank of New York’s Survey of Consumer Expectations for May findings that “expectations for how much more consumers will spend on homes, food, rent, gas and the cost of a college education all rose.”
To understand the issue, let’s start with the reality and then get to its impact. This May, the consumer price index jumped 5% compared to the same month last year, according to a report by the Labor Department. That represents a percentage higher than anything since the 2008-09 Financial Crisis, but it’s worth noting that Fed officials credit the stark figure to the Covid-19 rather than a structural concern. Last May, the entire economy was shut down by a global pandemic; with that in mind, it becomes less shocking that the inflation rates would be sharply rising as the economy reopens.
For the average consumer, the rise in prices is the headline-grabbing aspect of inflation. But not all price rises are created equal. For example, the rise in airline ticket prices has been widely covered, but that jump is actually tied to the simple fact of increased demand as more and more of the population is able to safely travel for the first time in 16 months. As Scott Keyes of Scott’s Cheap Flights told the Washington Post: “I think there’s going to be a short-term bump in airfare for the summer. Everybody is looking to travel, looking to make up for lost time, and especially looking to do so this summer while the weather’s nice and going finally safe and [everyone’s] comfortable to do so.” Thus, avoiding airline ticket inflation is as simple as waiting out this summer’s ticket-buying scramble.
Other areas of concern are the rising prices of gas, lumber and beef, which are closely linked to supply-chain issues. While gas prices are difficult to avoid, beef and lumber can be planned around by savvy consumers. These are not forever-issues — the supply chains will eventually come back online which should lead prices to drop again. In terms of gas, though the gasoline index is up 56.2% over the past year, it’s also worth noting that the price compared to 2008 (when it reached $4.11 per gallon) is actually still down.
Aside from gasoline, the aforementioned areas are all possible to sidestep. By understanding that these price spikes are not permanent, the Unifimoney user can try to reduce beef intake, put off housing renovations and wait to book that vacation in order to avoid adverse financial consequences. Importantly, while some sectors jumped by dozens of percentage points in May, the food index raised by just 0.4%.
So, while the year-over-year percentage jumps make for eye-catching headlines, it’s important to remember that the situation on the ground may be far less dire. “The more persistent categories of inflation — the ones that do a better job of capturing the sustainable trend—are significantly more subdued,” wrote Eric Wingorad, senior economist at Alliance Bernstein. “That means that the details of today’s print continue to support the idea that the spike in inflation is transitory, even if it is more intense than most forecasters (myself included) would originally have anticipated.”
Put simply, the inflation spike seems much more closely tied to the Covid-19 recovery than to the underlying indices of the economy.
The current supply-chain difficulties have led to inflation in certain sectors, but going forward, improvements in tech may actually benefit the Unifimoney user and the American economy on the whole. Tech tends to improve rapidly year-over-year compared to their cost. Not too long ago, CDs cost $20 per unit. Today, you and five friends can listen to every song in the world for $15/mo via Spotify. As the supply chains reopen over the course of this year or next, prices may begin to lower back to their pre-Covid levels. But, that same technological innovation — jump-started by this year’s stark reminder of the fragility of some supply chains — could lead to structural changes that vastly improve the consumer experience.
We may find ourselves in a world where 3D printing and robotics could help bring manufacturing back to the US at the same cost as the manufacturing in Asia. That could make supply chains more robust and could drive prices down further. As has been the case for a generation-plus in the United States, tech could open new doors to new global economic systems.
At Unifimoney, our goal has always been to make saving and investing as seamless and intuitive as spending. Spending is a personal choice and within the consumer’s control in most cases, though many banks and credit card companies have worked to influence the consumer to spend more. However, at this moment especially, it’s important to have an account that understands that wealth-building means making investing rather than spending simple, straightforward and automated.
We believe that cash is for making current and future payments like mortgages, tax payments, or down payments for a house. Cash is not a long-term investment, and never has been. This inflation-moment is a reminder that investing and prudent spending are the keys to financial stability. At Unifimoney, we’ve built an all-in-one app that can make wealth-building a reality for our users.
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The above does NOT constitute an offer, solicitation of an offer, nor advice to buy or sell specific securities. The opinions listed above are not the opinions of Unifimoney Inc. or Unifimoney RIA, Inc. but represent the opinions of independent contributors. These contributors may or may not hold positions in the stocks discussed. Investors should always independently research any stocks listed and form their own opinions, while recognizing that any investments made may lose value, are not bank guaranteed and are not FDIC insured.