Who Should Worry About Inflation—And Who Shouldn’t

China iTech Ghana
Friday, October 1, 2021 | views Last Updated 2021-10-01T19:42:18Z

Should you be worried about rising prices? Maybe concerns about inflation are overblown? How can you position yourself for financial success regardless of how much prices rise?

The dramatic bout of inflation seen over the past four months is straining paychecks and generally giving people the blues. And it’s doing its part to undercut consumer confidence and the economic rebound, as seen in recent reports.

The August University of Michigan Consumer Sentiment Index dropped like a rock, falling to its lowest level in a decade, even below the reading from the onset of the Covid-19 pandemic. Meanwhile, U.S. retail sales dropped 1.3% in July, especially for expensive goods like automobiles.

The Biden administration and the Federal Reserve say higher inflation demonstrates a rebounding economy and should cool off soon. But hot inflation makes you sweat when you’re living through it—just take a quick peek at the so-called Misery Index.

Let’s take a look at who needs to worry about rising inflation, who shouldn’t be concerned and what you can do to cope with the upward march in prices.

Workers Should Worry About Inflation

Inflation Worry Level: High
You might think workers would be feeling a lot better about their prospects. After all, employers increased payrolls by almost 950,000 in July, after adding 938,000 the month before. Hourly earnings jumped by nearly 4% year over year, and workers have been quitting their jobs in high numbers, suggesting confidence they’ll be able to find better employment elsewhere.

But if you didn’t take inflation’s impact into account, you’d be wrong. The latest inflation report showed that prices increased by 5.4% year over year in July. Wages increased, too—but not by enough to offset inflation. Inflation-adjusted earnings declined by more than one percentage point in July.

This has been a consistent theme over the past few months: In June, inflation-adjusted wages were down 2% while in May they fell 3%. Compare that to February 2020 when wages gained 3% and inflation was up just 2.3%.

A period of higher prices was always part of the Covid economic recovery forecast. Last year, Federal Reserve Chairman Jerome Powell said that he wanted prices to rise above the central bank’s 2% target for a modest period of time to reset inflation expectations.

It was inevitable that prices in May 2021 would be higher than in May 2020, when much of the economy was shut down. Supply chain breakdowns would cause shortages of certain products, driving up costs. Fed officials realized this, and forecasted that any period of high inflation would be transitory.

But transitory has morphed into the better part of 2021. The people bearing the brunt of this difficult period are those most reliant on earned income, rather than assets like stocks or real estate, to make ends meet.

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  • Who Should Worry About Inflation—And Who Shouldn’t

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