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Inflation: Everything You Need To Understand What’s Happening In 2022

Meaghan Hunt  |  April 25, 2022

Inflation is all over the news... and all up in your wallet. We'll help you to better understand how we got here and what's going on.

Inflation is making headlines daily, and we’re stressed about what that means for… well, everything. From the soaring cost of feminine products and rising rent, to the crunch on your retirement portfolio, chances are good that you’re feeling inflation rate both in your everyday life and with regard to your big-picture plans. 

Inflation is at its highest rate since Microsoft DOS launched (no, but seriously). We’re talking as much as 8.5% in some sectors. For comparison, a healthy inflation rate falls around 2% annually, according to the Federal Reserve. And at its current pace, inflation is growing faster than it has in almost 40 years. And the average American will need to pull in roughly $5,000 more in income than they did last year to keep pace with their current standard of living.

So, when will things level off? And until they do, how can we best understand what’s happening? We break it all down. 

What is even happening?  

This topic has taken over our newsfeeds, and we get it: if our “high-yield” savings account is earning interest that’s outpaced 10 times by inflation, that’s definitely a problem. You might be quick to blame the pandemic for this level of financial disruption, and you would be right: the supply chain (read: supply and demand) is a hot mess right now. No doubt, that’s impacting prices across the board. But this latest inflation hike stems from much more than just a shortage of computer chips

The pandemic has kept many people at home, and it’s changed the way they spend. Think: the entertainment, travel, and restaurant industries. Everyone and their mom seem to be taking on a home improvement project (a new deck, a hot tub, a backyard overhaul, a fresh home office). Those stimmy checks in 2020 and 2021 certainly did their job to encourage shoppers, but at the same time we were also forced to shift our consumer behaviors quite a bit. 

And even though we’ve now re-emerged from our homes, some things have taken a permanent shift. (I, for one, may never buy groceries in any fashion other than Target curbside pickup ever again.) 

So back to the supply chain thing…

As perfectly as the supply chain was working, all it took was a single global disruption to really throw things into chaos. Add to this picture The Great Resignation and the war in Ukraine, and things will take years to recover. 

The pandemic continues to disrupt factory operations, flights, and shipping schedules, and the carefully-orchestrated balance of producing a supply to meet demand will continue to stumble in response. Sure, toilet paper isn’t an issue today, but now Bluetooth headphones seem to be in short supply? It’s almost impossible to predict which goods will fall out of sync with shifting demand in a given week (or month).  

Talk about a domino effect

Consider the global lockdowns in March 2020. One of many significant interruptions was the stall in semiconductor production. The global demand for computer chips stretched supplies even further. (Turns out hitched output on a single computer chip may impact your ability to get everything from a laptop to a car.) And sourcing components globally means that a pandemic delay in one place all the way on the other side of the world can make a difference in your day-to-day. 

These factors, combined with staggered factory closings and understaffing, resulted in fewer new cars being made than expected — and suddenly, fewer used cars were available on the market to purchase. So, supply chain woes have the pandemic to blame, yes, but climate change has also played a role. When you take disruptive weather events and sprinkle them with pandemic-related closures and shortages, you’ve got a recipe for inflation at the pace we’re seeing. 

And you had better believe that the situation in Ukraine is factoring into inflation in more ways than one. From gasoline prices to food shortages, we’re likely to be feeling the impact on a global scale for a long time yet.

Inflation has reached a 40-year high thanks to a perfect storm of global events. While you may feel the hurt at the gas pump, grocery store, or on your electric bill most acutely, the reality is that commodities, energy, and even the Great Resignation are fussing with the balance of the market. These economic conditions are like a sailor’s knot, and they simply won’t be quick to detangle.   

So are my investments doomed? 

For those of you who have a bad habit of leaving too many tabs open, maybe you’ve been compulsively checking your brokerage account against the inflation rate. Or your 401(k) against the inflation rate. Or (worst of all) your savings yield versus the inflation rate. You may be gritting your teeth, but all is not lost. 

Despite the ups and downs of the market, conditions will stabilize and the market will rebound eventually. In the meantime, it may be time to assess whether you really need all of the streaming services you’re subscribed to back in 2020. And in addition to tightening your budget, take this opportunity to assess your retirement allocations. Are you comfortable with the stock-to-bond ratio? This could warrant a discussion with an expert– book a free appointment to get the ball rolling.  

Demand has changed

Did you swap your business-professional wardrobe for yoga pants? Your gym membership for a Peloton? Your restaurant addiction to a meal kit subscription? The entire world made changes during the pandemic, and even though some things are returning back to a level of normalcy not seen since 2019, other changes are likely to be more permanent. 

A home office has become the hottest commodity for folks whose worksites have closed permanently. And maybe a hot tub and patio renovation are more appealing than they once were. The game and its rules have changed, and the supply chain is still stumbling as it tries to keep up. Not to mention that different parts of the world are shutting down and opening up in rapid rotation, as new strains surface. 

 “It’s creating an environment where you can’t get the items produced,” explains Bob Crosslin, a private supply chain consultant based in Dallas, Texas, “because of labor or raw material shortages.” Even if supply is available, a guaranteed workforce at the right day and time isn’t. “If we were self-sufficient as a country, we would have gone into [something like a pandemic] with higher levels of inventory. Looking over the last 50 years at all the efficiencies that have been made, nowhere in the calculation did anyone ever consider what would happen if there were a pandemic that affects the worldwide supply of goods and services.” 

Okay, now my brain hurts.

This isn’t a simple situation; the resolution won’t be simple either. With something as tightly and efficiently rigged as the supply chain, the term “domino effect” comes to mind. Production was optimized for a pre-pandemic world, and it took decades to get that way. We’re struggling to cram a generation’s worth of evolution into an unsteady global market, and it’s not exactly running smoothly. Go figure. 

So what’s next? 

While an unstable supply chain may make your shopping trips feel like a dumpster fire, there is a silver lining: the economy is recalibrating in a considerable way. Short supply is great for business, and although the stock market has fumbled as of late,  we know that historically it always rebounds. And if you’re woefully eyeing a retirement portfolio that’s lost more than you’d planned, take a deep breath, and don’t expect a quick fix. Recovery is ahead if you can look long-term. 

And with more people working remotely, workforce mobility is on the rise. “There are more opportunities now than ever before,” Crosslin says, “if you know where to look and if you’re willing to engage.” Rapid evolution means a chance to shake up your lifestyle. You may have once been tied to a brick-and-mortar office but may now have the freedom to remote into work from a cruise ship or your RV. Supplies may be tight, but it’s time to dream big about how you want your life to look now — while radical change is in motion.

And while you’re mulling over a world of possibilities, maybe grab an extra jar or two of your favorite pasta sauce. Supply is, at least for now, still not a guarantee. And you can bet prices won’t be dipping anytime soon, either.

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