We recently had Jay Johnson on the Diapers and Deployments podcast. Jay is a proud Veteran, successful business owner, podcast host, and great friend. He has some insight on inflation and real talk about how it translates to our day-to-day lives. Below is an article written by Jay.
"To many, the word Inflation has a negative connotation, but they don’t really understand why. What is inflation and how does it impact our day-to-day lives?
Bottom Line Up Front - Inflation measures the increase in the price of goods and services, but also represents the decrease in the buying power of the dollar.
Where We Stand Now - In what is widely considered to be a healthy economy, inflation rates hover around the 2% mark, possibly floating as high as 3%. Well, 2022 kicked off at 7%, the highest inflation rate since 1982. As you can see from the chart below, based on numbers from the U.S. Bureau of Labor Statistics, we were at 1.4% just one year ago.
Controlling Inflation - The government and Central Bank generally control inflation through monetary policy, or increasing interest rates to maintain or lower inflation. Earlier this month, Federal Reserve Chairman Jerome Powell stated that he expects a series of interest rate increases this year.
Who wins and who loses during higher inflation?
Winners
Fixed-rate mortgage holders benefit as their interest rates are set for the life of the loan and not subject to fluctuations. Homeowners are hedged against inflation as their homes appreciate over time. Also, in times of higher inflation, they are insulated from rising rent costs while paying back their loans with devalued dollars for the win/win.
Commodities Investors who accumulate storable commodities - such as precious metals - have a bit of a hedge against inflation as commodity prices generally follow inflation. Many investors
have compared cryptocurrencies to other storable commodities, but there isn’t enough of a history yet to determine if they actually hedge inflation.
Losers
Retirees on a fixed income get hit hard during periods of high inflation. With the diminished buying power of the dollar, a set monthly income won’t go nearly as far.
Savers who tend to build their bank accounts or invest in CDs that take time to mature lose buying power as inflation increases. Interest rates tend to lag behind inflation rates so the longer-term investments with a low rate of return have a difficult time keeping up.
First-time home buyers are hit from multiple directions. Those saving for their first home during a higher inflation period are faced with rising home prices coupled with increased mortgage interest rates. To top it off, the money being saved for a down payment is being devalued by inflation, making the endeavor an uphill battle.
Debrief
Inflation obviously is not the end of the world but can wreak havoc on a tight budget and cause setbacks to financial plans. Understanding the potential impact of inflation on your day-to-day life and your future goals can help you prepare and lessen the negative effects. "
*All statistics taken from TradingEconomics.com and the U.S. Bureau of Labor Statistics.
Link to our interview with Jay.
Link to a "live" with Jay
Jay's amazing podcast: www.expertishpodcast.com
You can also contact him @ jay@landingcollective.com for email.
His phone contact is 858-925-4536
I have been a guest on Jay's podcast twice and spent a lot of time off the air talking about our Veteran community. Jay is a great resource with integrity and a passion for helping. Bookmark or subscribe to his podcast Expertish today for the latest financial news and how it impacts you.
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