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Inflation – A New Challenge

February 03, 2022

It has been decades since we’ve had to face inflation. In the 1970s, the average annual inflation rate was 7.1%. From 1974 – 1979 inflation was in the double digits peaking in 1980 at 13.55% (www.macrotrends.net).

We haven’t read of anyone thinking we are repeating the 1970s cycle. Most economists seem to attribute the current inflation to the situation created by the pandemic.

Federal spending put money in the hands of the consumer. While we were staying at home, we saved money and paid down debt. However, as society opened up, people wanted to get out and do things. It’s become a typical inflation scenario. Demand is high, supply is low. The empty shelves, the shortages (think semi-conductors), the worker shortage (ports backed up, lack of truckers) and you have a recipe for rising prices.

Many feel this is transitory. Once the shortages ease, prices should stabilize. Yet there are also wage increases – especially in the retail, restaurant, and travel industries – used to lure workers back. Not all agree. Plus, how do you define transitory?

We should also recognize that some companies do well with inflation. Examples are banks and commodity linked companies.

Based on the various articles we read, inflation is expected to remain elevated at least the first half of 2022.

 

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