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Inflation: Where Are We Headed?

Currently, we are facing a global dropoff in economic activity due to Covid-19. Inflation numbers are the lowest we’ve seen since the Great Recession, but even before Covid we averaged about a 2-2.5% inflation rate per year. Because of Covid, that rate dropped below 2% for the first time. However, here in the U.S., we are in recovery largely due to vaccine rollout and stimulus package efforts by the government; globally, we are not yet seeing in-tandem recovery due to the Covid outbreaks that are still happening.

But with recovery comes concerns about inflation. The Fed believes that, in upcoming quarters as the U.S. opens back up, we will experience pricing pressure. We’re seeing this in certain areas already, like real estate and lumber prices, but the good news is that we expect this to level out in a few years. So where are we right now, and where might we be headed?

What does low inflation mean for the markets?

Low and falling inflation tends to favor equities or stocks while commodities and basic materials tend to tumble. Though it’s understandable to be nervous about such a development, especially if you’re following the news, it’s not time for panic: There’s a good chance for reversal of this in future years.

We may expect some volatility in the future as prices adjust, but overall, we believe that this will lead to economic growth, which will translate to higher stock prices. 

How will this affect my portfolio?

It’s important to remember that inflation is only one aspect of risk when it comes to retirement and investment planning. You also have to consider other factors such as your cash flow, stock market valuations, and where the economy is globally and domestically in order to round out and diversify your portfolio and protect against risk. If you have any questions as to how the current economic situation and inflation might affect your investments and retirement plans, please contact us today.


The Team at Chatterton & Associates

Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Royal Alliance Associates, Inc., nor its registered representatives, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.

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