If you live in the South, then you know summer is here! In fact, even New York is feeling the heat, but it’s not just the summer heat that the country is feeling. It’s our changing financial climate that is causing us to check our thermostats. What is your setting? Are you in touch with your advisor and do you understand all the shifts along with the resets?

For now, at least, inflation appears to be on the rise by the indication that the consumer price index (CPI) rose 5.0% from a year ago, and the core index, which excludes food and energy, rose 3.8%. This is the largest 12-month increase since 1992. But I’m NOT calling for panic—and the markets thus far aren’t either!

Trust in the right plan and in an advisor with an actively managed investment style is key in most market environments, but especially now.

No doubt, we have been through a difficult year plus a few months tacked on to that number. So, you may find it easy to wonder where all of this will “land.”

Here’s what I advise clients to do—remain steady and to not change their portfolios unless they are facing a major life shift or have had a material change in their financial status. THEN you talk with your advisor. Better yet, download a free copy of my book Liberated Investor and learn the 4 simple principles you need to know to make wise investment decisions.

Do the Numbers Point to Inflation?
During the height of the pandemic, we watched as consumer prices collapsed. But they also rose strongly on a month-over-month basis. Confused? You could be if you worry too much about staying in step with all that is going on in this ever-changing environment.

The core index increased 0.7% in May from April, above the 0.5% expected and more than three times the average monthly increase over the last five years.

So, where are we heading? There’s more: despite the hotter than normal data, government bond yields fell in the first quarter to their lowest levels in three months, while stocks hovered near record highs.

Since the inflation data was released in April, investor confidence seems to be making a turn around. People are pivoting from fear of inflation to the belief that price pressures are temporary and soon all will settle. This is an excellent indicator for the future.

Most of us understand that May’s and April’s economies was largely driven by a handful of what ifs: Will restaurants reopen fully, hotel space fill up, and travel in general begin to return to pre-pandemic levels? While we are not fully back, we are beginning to see our economy return.

Visit your local café or grocery store and you will see “the release of pent-up demand” as consumers return to their usual spending habits. Further increases should be expected even though things like air travel are still 12% below its pre-pandemic level and hotel prices by 5%. (Bloomberg Reports)

How this Impacts You
The impact of supply shortages and what we call “bottlenecks” should begin to change. A bottleneck is anything that continues to prevent consumer goods from reaching their destination. As shelves are restocked with items consumers regularly purchase, confidence should return. Deep Breath, finally. Are you trusting yet?

According to Bloomberg Reports, “Recent inflation data doesn’t really provide a resolution to the great ‘inflation debate.’ The surge in prices is concentrated in the pandemic-hit sectors, supporting the argument that inflation may continue to prove to be transitory. As it pertains to available goods and any bottlenecks, supply will catch up, and demand will eventually normalize.” 

Economists continue to watch consumer confidence levels and how this will affect the market growth. Is the possibility of fast-rising prices becoming etched in consumer expectations? If wage growth takes place will this cause a sustained rise in inflation?

It’s true, as small businesses across the country come back online, they are facing labor shortages, but as hiring picks up and more companies resume a near normal pace, we should see the economy settle. Plus, since it’s summer, many jobs in leisure and hospitality sectors are being filled with a higher compensation structure.

What You May See—
If elevated inflation continues along with rising wages, increased rents, higher consumer prices, and a falling dollar, the Federal Reserve will be forced to raise rates. No one wants to revisit the 1970’s when runaway inflation delivered a huge negative pathway for stocks AND bonds.

I believe this rise in inflation is temporary. As more and more companies return to a normal pace, the upward pressure on prices should subside later this year, and inflation will settle moderately above the Fed’s 2% target.

If this takes place, the Federal Reserve could raise rates as early as 2022, which is slightly earlier than the recent projections. Something that is also interesting to watch is the “reserve” that many companies are currently running on. For now, companies with pricing power can maintain profitability levels, which is neutral for stocks and moderately negative for bonds.

The bottom line is that not many investors have an appetite for deciphering what inflation means for their current investment strategy—and nor should you. Unless managing your hard earned savings is your full-time job and your history shows that you’re good at it.

Always remember— The best time to get liberated and take control of your financial future is NOW! This is the perfect time to adopt and become motivated!

You no longer must be paralyzed by Wall Street’s games or overwhelmed with the idea of where to begin, restart or change your current investment portfolio. You can start today, right now, by investing with confidence.

Call me for a free 15-minute consult and checkup! If you have NOT downloaded your copy of the third edition of The Liberated Investor, you can do that now so that you can understand the Wall Street game and play it better!