I think we can all agree that inflation is on the upswing, but questions remain as to whether the increases will persist or are merely the result of transient factors. Here are my thoughts.
I think prices shot up temporarily in the spring a result of the post-pandemic recovery. By July, the core CPI, which does not include food and energy, had already begun to decelerate. That doesn’t mean it will drop to historic lows again and stay there. To my mind, government spending on social programs and the continuing housing shortage make that scenario unlikely. I think the new normal will be inflation rates a little north of 2%. If my prediction is correct, we’ll experience a gradual reduction in purchasing power.
The cumulative effect of even moderate inflation can have a significant impact on the value of a dollar over time. Over the 20 years from 1991 to 2021, the cumulative price change was 100.44%, which means that a $1 item would cost $2 today. Anyone who retired in 1991 and is still living today would need double the income to keep up with inflation.
Given the changing economic conditions, now’s a good time to review and reset financial plans created within the last 10 years. As we plan for the future, we should make sure inflation and interest rate assumptions are aligned with today’s economic realities.
Johnson Brunetti is ready help you review your existing plan or create one. If you’re a current client, let’s set up a meeting this fall to go over your plan. If you’re reaching out to us for the first time, we invite you to schedule a complimentary 15-minute consultation with one of our advisors. Our firm has helped hundreds of pre-retirees and retirees navigate a changing world. Contact us to put our experience to work for you.