As you know, there has been a fair amount of discussion lately about inflation spiking in our country. Examples include the price of gasoline, homes, vehicles, groceries and leisure activities. It seems that everyone is jumping on the higher prices bandwagon. The question: Is this a temporary blip or will it continue? Get worse?
I wish I had a crystal ball so I could give you a solid take-it-to-the-bank answer but, of course, I cannot do that. However, I can share with you several reasons why I think that rapidly rising prices are more of a near-term than long-term issue.
First, there are imbalances between supply and demand that are causing increasing prices. There is no segment of our economy where that is more evident than housing. Housing gurus suggest that we have a shortage nationally of about four million homes versus the number needed to satisfy demand.
Millennials are finally reaching an age when they are interested in owning a home so that’s pushing demand higher while the supply remains fairly stagnant. Another area of higher demand than supply is gasoline where everyone has decided to travel this summer (after having been couped up for the last 16 months) at the same time as the government has shut down several major oil pipelines. The latter has created a shortage of gasoline relative to the demand spike. I suspect that demand will ease a bit this fall as kids throughout the country get back to in-person school (hopefully) and the summer vacation period comes to a close.
Second, many industries and businesses took a huge hit in revenue during the pandemic. The hospitality and leisure industries (resorts, theme parks, cruise lines) were particularly hard hit. So, one can expect that they would try to recoup some of those losses via higher prices as long as the public is willing to pay them. Once we get back to a more normal schedule of leisure and business travel, I believe we’ll see a normalizing of pricing; normalizing meaning that prices stop increasing at a rate higher than general inflation.
Third, the pandemic created a situation where millions of people lost their jobs as companies and businesses closed. So, the Federal Government began to supplement state unemployment compensation systems so displaced workers would receive a higher weekly benefit. Health care benefits were also increased and there was a moratorium placed on foreclosures and evictions for non-payment of mortgage debt and rents. These additional benefits created a situation where many of those unemployed could receive in compensation and benefits at larger amounts than they had earned working.
And, many got accustomed to not working. Now that the economy has reopened, we need to get these folks out of the house and back to work. You see “Helped Wanted” signs everywhere these days so the labor shortage is real. As is the case in any shortage, businesses are increasing wages and providing hiring bonuses to lure people back. It will take time for this to work its way through the system but it will pass.
Finally, let me mention something that often comes up when inflation fears arise. That issue is buying gold as a hedge against inflation. While gold prices have risen recently, gold has proven over long periods of time to be a poor hedge against inflation. This may be a good time to sell gold given its high price, but it certainly isn’t the time to buy gold, in my opinion.
Frederic “Ric” Schilling is a Florida native, born in Jacksonville, Fl. Ric is President and founder of Senior Guardians of America, a local North Florida firm specializing in tax reduction, long term illness planning, asset protection, probate avoidance and life income planning. Ric is a National Speaker and Advocate on Senior Issues and has been featured by the Florida Times Union and WJXT, TV-4 in Jacksonville as an authority on Estate Planning and Retirement Issues. Senior Guardians has an A+ rating with the Better Business Bureau and is a member in excellent standing with the National Ethics Association. Ric Schilling is a Certified Financial Fiduciary (CFF). You may contact Ric at 904-371-3302 or 888-891-3381 Please visit: www.seniorguardian.com Investment Advisory Services offered through Center Street Advisors, Inc. (CSA), an SEC Registered Investment Advisor. Frederic H. Schilling of Schilling and Associates, LLC (d/b/a Senior Guardians of America) is an Investment Advisor Representative of CSA.
