It is no surprise that things – seemingly everything - have gotten more expensive over the last few months and inflation has had a significant impact on our financial lives. In the month of September, U.S. consumer prices increased to a decade-high as Americans paid more for goods and services such as food, rent, energy, and other products. CPI, or Consumer Price Index, which measures what consumers pay for goods and services, rose 5.4% year over year, and 0.4% over the past month.
The ongoing price increases have continued to put pressure on the Federal Reserve, to which it has responded that increases in prices likely are temporary and have risen because of the pandemic and the global economic recovery, as well as other associated factors. The Fed remains vigilant and has repeatedly indicated that it will continue to do everything in its power to help move the U.S. economy forward and keep inflation in check.
But what else could have caused the drastic price increases undoubtedly making our eyes pop? Speculation swirls but one hard and fast reason inflation occurs is supply vs. demand imbalances. Over time, markets show they can equalize supply and demand imbalances, however when a sudden and shocking shutdown such as the COVID-19 pandemic hits, it may take longer than expected for these imbalances to equalize. Price increases stemming from ongoing supply chain bottlenecks amid strong demand, an increase in consumer spending, labor market shortages, and a recovering economy may continue to increase inflation in the short-term.
Following are four snapshots of real-life instances where we’ve encountered increases since the pandemic began.
- Working hard, bringing home the bacon
High prices are outpacing the pay gains many workers have seen over the past few months. The average hourly worker’s wage has increased by 4.6% in September since last year. Although not enough to “keep up with the Joneses,” the 4.6% year-over-year increase in wages is a good sign and motivation for the American worker.
- Flashy new ride
New car sales in September increased 1.3% from the previous month, and 8.7% compared to a year ago. Unfortunately for the consumer, we’ve also experienced the largest 12-month price increase on new cars since 1980, thanks in part to shortages of semiconductors globally. The average price of a new car was $4,900 more expensive than a year ago and the average price on a new car is roughly $45,000, the highest ever.
- Is your coffee table solid gold?
Prices for household furniture, partly due to shipping delays, jumped 2.4% in September from last month and over 11.2% in the last 12 months. This is the largest monthly increase since 1988 and largest 12-month increase since 1951.
- Heading somewhere? Start walking!
Rising energy prices, due to disrupted supply and geopolitical forces, have also increased. Gas prices jumped 1.2% since last month and have dramatically leaped 42% from a year ago. On average in the United States, the cost for a gallon of gasoline is $3.29, with some states peaking over $5.00/gallon. Electricity prices also increased 0.8% in September from August.
A spotlight has landed on Social Security, as it too will be impacted by recent inflation. Newsworthy indeed, and because of the sharp increase in inflation ignited by the COVID-19 pandemic and increase in CPI, the Labor Department has offered that the roughly 70 million people who rely on Social Security will receive a 5.9% cost-of-living adjustment (COLA) next year – the largest bump since 1982. In 2021, the average retiree received roughly $1,565 per month this year. This 5.9% cost-of-living adjustment will increase the typical Social Security payment to $1,657. On the surface, a 5.9% increase in income may be viewed with a smile, but we encourage you to connect with your tax planning expert and your PCG Wealth Advisor to discuss how this increase in income will impact your taxes and financial plan next year and long-term.
Overall, there may be many contributing factors as to why you are seeing a surge in prices of your goods and services. While the basic supporting causes likely are continued limited capacity in the global supply chain, lack of employees, and a recovering global economy, we’re still juggernauted as we are in it - subjected to the 10-year peak of inflation. Time will tell as inflation plays out, but please know that our team stands firm at keeping you, your family and your financial peace of mind at the forefront of our business.
Wishing you health, happiness and the opportunity to spend time with your loved ones in the coming months and during the holidays.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Private Capital Group, LLC (“PCG”), or any non-investment related content, made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Information contained in this communication is based on data gathered from what we believe are reliable sources. It is not guaranteed by PCG as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. Further, you should not assume that any discussion or information contained in this communication serves as the receipt of, or as a substitute for, personalized investment advice from PCG. To the extent discussed herein, investment indices are unmanaged and cannot be purchased directly. Historical performance results for investment indexes and/or categories are included for informational purposes only and generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. PCG is neither a law firm nor a certified public accounting firm and no portion of the communication should be construed as legal or accounting advice. A copy of the PCG’s current written disclosure Brochure discussing our advisory services and fees is available upon request.
Please Note: If you are a PCG client, please remember to contact PCG, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. PCG shall continue to rely on the accuracy of information that you have provided.
If you do not want to receive further editions of this newsletter, please contact Private Capital Group at 860.561.1162, or e-mail: firstname.lastname@example.org, or write to us at Private Capital Group, LLC, 29 S. Main Street, West Hartford, CT 06107.