RELAX ALREADY, YES INFLATION IS HIGHER THAN IN THE PAST 13 YEARS, BUT IT’S TRANSITORY!

At least that is what the Federal Reserve {FED} which bats < 50 percent accuracy and the Biden team are saying.  Yes, it is high, but it’s not a big deal!  The FED and Biden’s talking heads say today’s high inflation is TRANSITORY {Our word for the day –TRANSITORY – sounds like a bad transmission- NOT}    

WHAT ON EARTH IS TRANSITORY?

Transitory means not permanent or temporary.  Now why these people who claim big brains cannot bring themselves to say temporary, is beyond me.  For Americans who need to purchase little things like food, gas, pay rent and utilities, kids’ clothing and shoes, etc., this “temporary” inflation is taking HARD-EARNED MONEY many Americans simply do NOT have!.  

Temporary” inflation significantly HARMS our most vulnerable Americans.   

HOW LONG IS TEMPORARY? A FEW WEEKS, A DECADE?

I realize the FED will NOT define how long today’s inflation will last!  Maybe because they are clueless about what temporary actually means or if it is indeed true. Reminds me of Bill Clinton’s testimony, “It depends on what the meaning of the word ‘is’ is. If the—if he—if ‘is’ means is and never has been, that is not—that is one thing. If it means there is none, that was a completely true statement. …

U.S. Inflation is the highest in 13 Years as prices have increased on average 5%.  The Fed expects elevated inflation for the remainder of this year with the possibility of inflation moderating into 2022.  I know- not very helpful, but this is how they speak and write!   

 

INFLATION CONTINUES TO INCREASE FASTER THAN FED EXPECTATIONS

 

GAS PRICES INCREASES 43 PERCENT IN 12 MONTHS!

That means multiple items that are part of everyday American life are increasing strain on their finances.

ITEMS SEEING GAINS IN PRICES OVER TWO MONTHS – MAY TO JUNE 2021:

  • Used cars and trucks: 10.5% increase
  • Fuel oil: 2.5% increase
  • Meats, poultry, fish, and eggs: 2.9% increase 
  • Uncooked beef steaks, 6.0% increase
  • Car and truck rentals: 5.2% increase
  • Airline fares: 2.7% increase

CAUSES OF HIGHER INFLATION 

$600 PER WEEK EXTRA UNEMPLOYMENT CONSEQUENCES

Many businesses find that employees will not return to jobs that pay less than what they can earn in unemployment.  When the Federal government added an extra $600 per week to State’s unemployment, University of Chicago researchers discovered:  “For two-thirds of people who lose jobs, their unemployment benefits exceeded what they had been earning”. No worries, the government stated they would anxiously return to work! The researchers even drilled down into specific low-paying jobs to see how those who kept working earned less than those who weren’t. For instance, unemployed janitors were eligible to collect 158% of their pay, while the typical retail worker can get 142% of what they regularly earn.   

Imagine this conversation.  I can go back to a job I dislike working for a boss I would like to run through a tree shredder, or I can stay home and do whatever the heck I want and make MORE money?  And when the money fairy finally stops paying me, I can quickly return to work. Be honest, how many of you vote to stay home?  Me, Me, Me!

The lack of employees is causing a deterioration in services in many businesses, especially restaurants.  

REALLY DESPERATE TO HIRE!

Many employers permanently closed their doors when unable to hire people at reasonable rates.   Others, such as Chipotle, raised wages and prices. “Chipotle Mexican Grill (NYSE: CMG) today announced it is increasing restaurant wages resulting in a $15 average hourly wage by the end of June. The restaurant chain raised prices approximately four percent to help offset the higher wages.”

Amazon and Walmart are now paying ~$15.00 per hour compared to the federal minimum wage of ~ $7.25. States minimum wages range from $7.25 to $16.00.   

The Biden administration dropped the extra $600.00 per week to $300.00 or $1,200.00 per month. This extension ended on September 1, 2021. Before September 1, 2021, business owners stated the extra $1,200.00 per month plus State unemployment funds made it harder to hire good workers. In three states, the average unemployment benefit plus the $1,200.00 monthly supplement exceeds average weekly wages

Average state and federal unemployment benefits exceed the minimum wage in every State in the U.S.  This action may be an attempt by politicians to implement a permeant Universal Basic Income.  

Wages increases are permanent NOT transitory. 

In addition, the federal government is now mandating Covid vaccinations or minimum weekly testing (for all employers with >99 employees), resulting in more labor shortages as some Americans are refusing. Again actions that increase inflation.

SEMICONDUCTOR CHIP SHORTAGE

Prices of new vehicles, computers, smart devices. T.V.s, etc., are increasing because of a shortage of semiconductors/chips. Seventeen auto factories in North America and Europe have halted or reduced production in recent weeks because they do not have chips!  Decreasing the supply of new vehicles while increasing the cost of new and used cars.  

Unfortunately, chips shortages are projected to last into 2022. 

HOUSING PRICES AND SHIPPING COSTS INCREASE 

Lumber prices increased over 400 percent over the past 12 months!  Raising the average new home cost by $25,000.00 or more.  Rents have increased ~ seven percent in reaction to surging housing prices. 

Shipping constraints caused an increase in the price of multiple goods, including toys, this holiday season. It may be advisable to buy your kid’s toys now.  

Supply Bottlenecks

In 2020, due to Covid, many manufacturing plants either shut down or reduced output.  As the economy starts picking up in 2021, robust consumer demand is putting upward pressure on prices. The Fed believes these increases to be temporary and should begin reducing in 2022 as global supply chains continue to increase production where possible. Finally, given that supply bottlenecks are seen as a critical inflation driver, the Fed hopes to resolve these broadly by 2022. For inflation to prove transitory, the Fed needs to see inflation on a broadly declining trend. If that doesn’t happen, then the monetary policy might have to adjust with a corresponding impact on markets and your investments. Any rate hike to counter inflation will reduce purchases, especially homes and other expensive items such as vehicles purchased using credit.

ENERGY SUPPLY AND DEMAND CONCERNS 

In 2008, the world experienced record-high oil prices, and the profits of the energy industry expanded greatly. With rising profits came an extraordinary level of investment into future oil production. The resulting oil boom of the 2010s and a rapid increase in global oil production dampened energy prices. In 2020, record low oil prices led to record losses among energy companies and significantly reduced capital expenditures in energy exploration projects. Due to lack of investment and fewer discoveries, supply growth worldwide will be limited, and outright supply declines are occurring. Although supply will likely be tight, given aggressive policymaker plans to invest in infrastructure, demand for oil and other commodities should remain robust, even assuming considerable electrification market share gains within the transportation industry. With constrained supply and increasing demand, energy prices should continue to rise in the coming years, putting upward pressure on costs across a wide range of goods and services (while also enabling the rise of alternative modes of transportation that are more energy-efficient).

AGING POPULATION

Baby boomers are retiring in droves and are not being replaced by enough Generation Z workers. As the U.S. population ages and an increasing proportion of the workforce retires, companies are likely to be hard-pressed to find new workers. According to Oxford Economics, an estimated two million workers have retired since the pandemic, representing a retirement rate roughly double that of 2019. At the same time, minimum wage thresholds have been increasing, along with unemployment benefits. These trends should lead to higher wages for the U.S. workforce.

WHAT CAN YOU DO?

We have almost zero influence on the national inflation; if the increased prices are causing difficulties for you and your family, a few options.

Reduce Expenses: I purchase at Costco when they place items on sale.  Stables such as toilet paper, laundry detergents, etc., often go on sale, saving 20 percent or more.  Because I have the luxury of space, I stock up when items are on sale. I also buy store brands.  Buying Costco laundry detergent, garbage bags, dishwasher detergents, etc., saves me 25 percent or more.  In many cases, the manufactures of Main Brand products make the store labeled products and slap the store name on the label. 

Gas is a bigger problem.  Most likely, you use your car for work. Use public transportation when available.  I seldom drive into the city of Chicago and take the train.  I save both on the gas cost plus the ridiculous parking fees, which can run $40 for one to two hours of parking!  Check other insurance companies for better rates on car and home insurance. Fill up your tank when you see a reasonable gas price. 

CUT YOUR STREAMING SERVICES: How many entertainment channels do you need?  I have too many: Netflix, HBO Max, Amazon, Apple.  My wife did cut one last year and yes I complained! If you need to cut costs, discuss with the family and pick the least utilized options to end! 

Ask your boss for a raise.  I have been a boss and was always willing to listen and fight for good employees.  Worse case, your boss says no.  But maybe she sees you as a valuable member and will try and boost your compensation.  Every dollar helps.

Be honest with your kids.  If you were spending $100/week for groceries and now it costs you $120.00, this equates to an extra $1,040.00 per year.  Have a family discussion and brainstorming session looking for expenses to cut.  

Reduce Dinners/Meals Out:  I am a frugal man and prepared my lunch 99% of the time. I was saving dollars, gas, and time.  If you save $4.00 each day, you have an extra $1,000.00 annually. 

CONCLUSION

Who is most harmed by inflation?  The many Americans living in poverty, the lowest paid, retirees, and seniors.  The 12-month inflation rate is ~5.4% and is expected to stay at that rate or higher through the end of 2021 or 2022.  This will be the highest rate of inflation since 1990. 

In short, this temporary inflation is likely to stay with us for a while, harming those who can least afford to pay more for essentials such as rent, utilities, food, and gas.

WORK AND ACHIEVE YOUR FINANCIAL FREEDOM!

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ABOUT ME

I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger with an N.C. State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.

I left a corporate career because I desired to make a difference as a speaker and writer. I was blessed to be coached and mentored by strong women and men in my family and professional life.  It is my time to serve and give back.

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I started my first business at ~13 years of age (a small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate and am happy to share my finance and investment lessons.  I am NOT a licensed financial advisor.  Please do not construe my suggestions on this blog as recommendations for your situation.  As an investor, you must establish your risk/loss tolerance. Investment in any asset involves risk, including complete loss. 

 Please seek your licensed CPA or fiduciary financial advisors for individual financial advice.  

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This blog will provide, information and simple strategies, that will assist you to achieve YOUR financial objectives and long term targets. For over 30 years, I solved multi-million dollar problems, for Fortune 10-250, companies. My formal education includes: Business, Finance and Chemical Engineering {Problem Solving} at: Harvard, Rutgers and North Carolina State. And an additional 30+ years, managing my family’s investment decisions. I currently manage/advise people with net-worths ranging from the tens of thousands to several million dollars.

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