This policy initially triggered a recession in 1981 and 1982, during which unemployment at times reached 10%. By the end of 1982 inflation had fallen to 5% and the fed funds rate was back to 9%. This was considered a success at the time.

What is the inflation rate in 2022?

According to the Bureau of Labor Statistics, consumer prices increased 8.3% in the 12 months ended April 30, 2022. This is not a seasonally adjusted number. Expectations for the full year vary, with many forecasts in the 6% per year range.

Which social and economic factors will lead to an increase in inflation in 2022?

Experts are pointing to a variety of factors that have caused the inflation we’re seeing so far in 2022.

Strong demand

The Biden administration’s generous $5 billion stimulus package helped keep consumer demand for goods and services strong. These stimulus checks allowed consumers otherwise negatively impacted by the pandemic to sustain spending in many cases.

supply chain issues

Supply chain issues across a variety of industries have been widely reported in the news media. There are stories of cargo ships stuck in ports and not having enough workers to unload them. This has led to a shortage of many products, which has resulted in higher prices. An important example is the price of petrol. Scarcity and high demand have resulted in record costs at the gas station.

shortage of raw materials

Related to supply chain issues are shortages of some key commodities. In the case of food, this was partly driven by problems in the agricultural sector, including the impact of domestic and international droughts, the avian flu epidemic and the war in Ukraine. All of this makes certain ingredients and raw materials more difficult to source and has helped drive up prices.

labor shortage

That Great resignation has been widely documented in the media and is impacting virtually every industry. The pandemic has prompted many workers to either leave the workforce or move to “greener pastures” elsewhere. Many companies need to offer more generous wage packages to attract and retain employees. This labor shortage goes beyond the employees. Many restaurants, shops and even gas stations have staffing problems.

Will inflation fall or level off in 2022?

Many experts are predicting that inflation will moderate somewhat over the course of 2022, perhaps ending the year at around 6%. This is still high compared to what the economy has seen in recent years.

Predicting the future is difficult at best. The direction of inflation will depend on a number of factors, including the effectiveness of Federal Reserve policy and the ability of companies to resolve their supply chain problems.

Allianz chief economic adviser Mohamed El-Erian pointed out in a recent question and answer session that a rapid fall in inflation would signal that consumer demand had been seriously “damaged”.

What are some possible outcomes for the economy if inflation stays at these levels?

Persistently high inflation can have a negative impact on the economy and markets. Some possible examples are:

• Persistently high inflation could make the prices of many goods and services unattainable for many consumers. Lower consumer demand could adversely affect the revenue and profits of many companies, ultimately impacting their stock price.
• Persistent inflation may result in the Federal Reserve raising interest rates further. This makes it more difficult for many consumers to borrow to pay for larger purchases such as houses and cars. This could also lead to higher interest costs for adjustable rate loans. This higher interest cost will serve to reduce consumer demand for many other goods and services.
• Persistently high inflation could lead to a recession if the Fed decides to take drastic measures in the form of tightening monetary policy and further rate hikes.

Obviously no one knows how our current inflation problems will play out or how long they will last.

What can we do to fight inflation?

From a government perspective, the Federal Reserve generally takes the lead in fighting inflation. Its main tools are monetary policy and interest rates. We currently see the Fed using these tools; Time will tell how successful the strategy is in fighting inflation.

Price controls are another government tool. These were notably used by then-President Richard Nixon in the early 1970s. While they initially seemed to work, a few years later inflation skyrocketed to record highs.

Businesses and individuals can try to change their spending and investments to stay ahead of inflation. However, every situation is different.

Inflation and your customers

Inflation can have a profound impact on your client’s financial health.

investments

Inflation, combined with rising interest rates, can have a negative impact on your clients’ fixed income investments. In equities, certain companies will do better than others under inflationary pressures. This might be a time NOTE TIPS for your customers. At least it’s a good time for it review their investment strategy for any adjustments.

retirement

Inflation is the enemy of retirees. Many retirees have a fixed or semi-fixed income. You will want to visit your customer again retirement withdrawal strategy and make any necessary changes to ensure they don’t outlive their money.

social insurance

A key component of most retirees’ income strategy is Social Security. So far the COLA for 2022 and the projected increase for 2023 were quite robust. For customers who are already on Social Security, this is great. For those who have not yet claimed their benefits, inflation and COLAs are factors to consider when deciding when to apply for their benefits.

The effects of inflation are felt throughout the economy, including your customers. Be sure to discuss with them the possible impact of inflation on their financial situation. They will be reaching out to you for planning suggestions to help you navigate this current wave of inflation coupled with high interest rates.