American investors may be hearing varying messages about how long the current period of inflation may last and how much higher prices are likely to go. But they’re receiving a consistent message from one source — their wallets.
As of September, inflation was up 5.4% from a year ago. The annual increase was the highest in 13 years, according to the Labor Department. With the cost of new cars, food, gasoline, and restaurant meals helping lead the way, U.S. consumer prices jumped 0.4% from August to September of 2021. Excluding the volatile food and energy categories, core inflation rose 0.2% in September, and was up 4% compared with a year ago.1
Many experts, like Federal Reserve Chair Jerome Powell, have stated that inflation is likely a temporary post-pandemic condition. But the steady beat of rising prices — plus continuing snags in the supply chain and product shortages — is making inflation a concern for many consumers and investors.
Here is a brief overview of the current situation that may help in discussions with your clients:
Americans are now tuned in to inflation
After years where economists may have been more attuned to the inflation rate than consumers, polls show that regular Americans are now paying attention. In a consumer survey by the Federal Reserve Bank of New York, American consumers predict 4% inflation for the next year and 3.4% for the next three years — the highest levels since the survey began in 2013.2
Inflation isn’t limited to the United States
The inflation pinch is being felt in other parts of the world as well. In Europe, inflation also reached 13-year highs with a 3.4% increase in September, led by rising energy costs.3
Social Security recipients will see a major cost of living boost
Inflation is always a concern for retirees. People receiving Social Security benefits will see a major increase in benefits for 2022. The 5.9% cost-of-living adjustment for Social Security recipients is the largest in 39 years, and follows average annual adjustments averaging 1.65% over the past 10 years.
The increase raises the average Social Security payment for a retired worker to $1,657 a month next year. For a typical couple, the monthly benefit will rise by $154 to $2,753 per month.4
Through it all, the Fed Chair advises continued patience
At a recent virtual conference appearance, Federal Reserve Chair Powell suggested that supply chain disruptions and shortages will be resolved over time, but inflation may be elevated well into next year.
Powell also indicated that the Fed is not yet ready to raise its benchmark interest rate.
“We think we can be patient and allow the recovery to take place and allow the labor market to heal,” Powell said. He did indicate that the economy could be ready for a rate hike next year. “No one should doubt that we will use our tools to guide inflation back to 2%,” Powell said.5
FundVisualizer can help you prepare for conversations about inflation
With the cost of everything from rent to hair care products, to diesel fuel on the rise, your clients may be thinking about how they might need to adjust spending and saving habits over the next year. Inflation concerns might be especially important for those who are approaching retirement or are already retired, and those saving for education or home purchases.
FundVisualizer® can help you examine clients’ asset allocation, sector exposure, top holdings and more.
Putnam Retail Management.