Sarah Bauder
Sarah has been writing on the topics of politics, history and finance for over a decade. She is currently an editor at CPI Inflation Calculator, covering the topics of CPI, inflation, US economy and economic commentary.
by Sarah Bauder | Nov 15, 2019 | CPI, Inflation
Inflation is a general increase in the price of goods and services, and decrease in the purchasing value of a currency – essentially, it is measuring the temperature of the economy of a country. In addition to the broader implications of inflation on the economy of a country, it also affects one’s personal finances. Inflation is measured by the consumer price index (CPI). The CPI reflects the value changes in a basket of consumer goods and services, which are often adjusted to factor consumption patterns of the average consumer. Yet many people don’t consider the impact of inflation on future financial planning, seeing as the average American doesn’t keep up with inflation. It is something that should always be taken into account, especially when it comes to investments that will provide retirement income. Here are the 4 effects of inflation on your personal finances.
(Source: The Bureau of Labor Statistics)
The Effects Of Inflation On Your Savings
Inflation affects specific aspects of one’s personal finances differently. One area that is perhaps most susceptible to inflation are cash investments like a savings account. Because money is readily accessible, some people prefer to keep it in a savings account rather than invest it. Yet, as time passes, the value of money kept in a savings account can lose its value, considering that prices generally increase in the future. What you could purchase with $20,000 25 years ago, isn’t the same as the value of $20,000 today in 2019. In essence, the purchasing power of money may decrease while it sits in a savings account at a bank.
For instance, if a savings account contains $1,000 with an interest rate of 1%, by year’s end the account will have $1,010. If the rate of inflation is running at 2%, then there must be $1,020 in the account to have the same purchasing power that was started with. It’s important to remember, that interest gained in a savings account never keeps pace with the rate of inflation.
In essence, inflation will eat away at one’s purchasing power, because not only will the money lose value, it won’t gain anything either. This can be a cause for concern during retirement when you have less earning power. To protect the purchasing power of your savings from the rate of inflation, it would have to grow at or beyond the inflation rate. An effectual way to beat the effects of inflation on your savings is to invest some of those savings in the stock market.
The Impact Of Inflation On Stocks
Investing money in the stock market inevitably comes with a higher level of risk than simply keeping money in a savings account. Yet, as time passes, the stock market is expected to be able to handle or exceed the rate of inflation. Because of this fact, some investors prefer to invest their money in potentially higher growth investments like stocks. For those who prefer to avoid the volatility of individual stocks, another option is mutual funds, which usually provide good returns and are professionally managed. Furthermore, index funds might be an even better alternative for some, as they aren’t reliant on a fund manager, and follow their benchmark financial market index.
However, apropos of stocks, inflation still affects the value of the investment. The value of a stock is dependent on the performance of a company. When the economy is strong, inflation is usually high. During these periods, a company may have increased revenue and earnings, which would help their share price. However, as inflation rises, the company would have a larger expenditure for things like wages or raw materials – thus, affecting the company’s value. Additionally, akin to any other return, the stock’s return value will decrease as purchasing power decreases over time.
1979 $10,000 Treasury Bond (Photo: Wikipedia)
The Effects Of Inflation On Bonds And Treasury Bills
Debt securities like bonds and Treasury bills are fixed-income assets that payout the same amount each year. These assets are not as affected by inflation as money in a savings account. However, when the rate of inflation increases faster than the return on debt securities, their value depreciates. Earnings diminish as purchasing power declines with the rate of inflation.
One option, especially for those in their retirement years, is Treasury Inflation-Protected Securities (also referred to as TIPS). These forms of inflation-protected bonds are indexed to inflation, therefore protecting investors from the adverse effects of increased prices.
Property Ownership And Inflation
Property ownership is perhaps the most beneficial during periods of high inflation. As inflation increases, so does the value of the property. If you have a fixed-rate mortgage on a property, then the cost of the monthly mortgage payments will decrease as time passes.
However, because most people purchase properties with mortgages, higher interest rates could dissuade people from increasing their debt-load. Therefore, the demand for property decreases, making it more difficult to resell.
(Photo: REUTERS/Carlo Allegri)
Warren Buffet And The Matter Of Inflation
Preeminent investor Warren Buffet has long been a leading authority on inflation, as he is both focused on and fearful of it. In fact, lest it be forgotten, that prior to the financial crisis of 2008, Buffet, the CEO and chairman of Berkshire Hathaway warned that inflation would cause a collective upset – which it did.
In 2010, after the world was wrestling with the effects of the financial crisis, Buffet wrote a “tongue in cheek” thank you note to the US government.
“We are following policies that unless changed will eventually lead to lots of inflation down the road,” Buffet stated on an op-ed.
In his classic piece for Fortune in 1977, aptly titled How Inflation Swindles the Equity Investor Buffet succinctly outlined his views about the effects of inflation on investors.
“It is no longer a secret that stocks, like bonds, do poorly in an inflationary environment. We have been in such an environment for most of the past decade, and it has indeed been a time of troubles for stocks. But the reasons for the stock market’s problems in this period are still imperfectly understood.
There is no mystery at all about the problems of bondholders in an era of inflation. When the value of the dollar deteriorates month after month, a security with income and principal payments denominated in those dollars isn’t going to be a big winner. You hardly need a Ph.D. in economics to figure that one out.
It was long assumed that stocks were something else. For many years, the conventional wisdom insisted that stocks were a hedge against inflation. The proposition was rooted in the fact that stocks are not claims against dollars, as bonds are, but represent ownership of companies with productive facilities. These, investors believed, would retain their value in real terms, let the politicians print money as they might.”
Despite the fact that Buffet wrote this 42 years ago, certainly words of wisdom from an individual who is legendary for his investing prowess and sagacity pertaining to finance.
Planning For Inflation
Inflation is a financial component of life that cannot be avoided. However, there are things that can be done. Keep abreast of monthly inflation rates and CPI, via the Bureau of Labor Statistics release schedule. If inflation goes above the 3% level, it could be an indicator of worse things on the horizon. Factor in inflation when investment planning, especially with regards to fixed-income investments. Lastly, when planning for retirement, expect that the rate of inflation will be exponentially higher in the coming decades, rather than decreasing. Also, keep abreast of the market value of gold with a gold calculator. All are good ways to protect your personal finances from the possibility that the rate of inflation increases.
by Sarah Bauder | Oct 14, 2019 | Inflation
We conducted a survey asking 1,500 US respondents whether or not they kept abreast of inflation. We used Google Surveys and targeted males and females between the ages of 18 to 65+ from coast to coast. We asked the following question with three possible responses:
Do you keep up with inflation?
- No
- Yes
- I don’t even know what inflation is
The Average American Woman Does Not Keep Up With Inflation, Especially 18 to 24-year-olds
The overwhelming response of Americans, who took part in the survey, indicated that they did not keep up with inflation. A full 56.1% chose this response.
When demographic filters were applied to the survey results factoring females, very compelling insight was discovered. The percentage leaped to 63.6% and skyrocketed to an astounding 75.1% of females between 18-and 24-years-old.
Conversely, when demographic filters targeted specifically males, 48% stated that they did not keep abreast of inflation. Of the males between 18 and 24 who responded to the survey, 59.8% chose this option.
One possible explanation for the drastic variance of the percentage between genders could be the finance sector. Although blessedly changing, positions across the spectrum of finance and business have typically been held by males – thus, making a larger percentage of males more inclined to keep up with inflation.
Males Are More inclined To Keep Abreast Of Inflation, Especially Middle-Aged Males
The second most popular response to the survey was 30.9% of respondents indicated that they did, in fact, keep up with inflation.
Yet, when demographic filters were applied focusing specifically on gender, 38.9% of male respondents stated that they kept up with inflation, while conversely, 23.5% of female respondents selected the same option.
When the demographic filters targeted middle-aged males between 45 and 64-years-old, the results soared to 42%. Because almost half of this cohort indicated that they kept up with inflation, they have the highest percentage of respondents who answered “yes” to the survey question.
These results could further be demonstrative of the fact that males, especially middle-aged males, populate a higher percentage of positions across the spectrum of finance and business, which would warrant them keeping up with inflation.
American Women Between 25 and 34-years-Old Indicate That They Don’t Know What Inflation Is
Of the American respondents who participated in the survey, 13% indicated that they didn’t even know what inflation was.
Yet, interesting insight was discovered when demographic filters were applied to the results, targeting specifically gender. 13.1% of male respondents indicated that they did not know the definition of inflation, while 12.9% of female respondents chose the same response.
However, when demographic filters focused specifically on females between 25 and 34-years-old, 18.6% of this age bracket indicated that they didn’t know what inflation was. Thus, it was the second most popular response to the survey question for this demographic.
Conclusion
Based upon the results of this survey, more than half of all Americans who responded did not keep abreast of inflation. Although a higher percentage of males who participated indicated that they did not know the definition of inflation, the highest percentage of respondents who did not know what it was were females aged 25 to 34. Yet, males, especially middle-aged males, were more inclined to keep up with it. This could be explained by the fact that as a generalization, jobs within areas of finance and business which would necessitate keeping abreast of inflation, are typically dominated by males.
Details About The Study And RMS Score
by Sarah Bauder | Aug 28, 2019 | Inflation
Annuities are a popular insurance contract that provides guaranteed returns for a set period or for a lifetime. In this article, financial experts discuss whether or not annuities represent a good investment for inflation protection.
Carefully Evaluate Any Annuity And Pay Special Attention To The Inflation Riders And How It is Calculated
“Single-Premium Annuities are not designed to be inflation protection, they are insurance product designed so that you don’t run out of money. Annuities are simply a promise to pay you and income for the rest of your life how long or short that may be. Annuity companies usually offer the opportunity to purchase or not purchase an inflation rider when you purchase one of these contracts. An annuity is not really an investment to protect against inflation because your actual return, that is how many and long you receive payments- is primarily delivered by how long you live!
An inflation rider might be purchased and in this case, inflation might outpace the contract terms and your payment would be adjusted upwards to keep up with the rising costs of goods and you would see your real income keep up with the rising costs. Inflation may be similar to historical averages and your income would be similar throughout the term of the contract.
Currently, we are at near-historic low rates of in inflation and if an example consumer purchased an SPIA and then saw a run-up in inflation, the real income of the annuitant could be significantly reduced. Inflation may be very low and you may have paid a premium for inflation protection, but if the inflation rate was very low you may have been better off not purchasing the option.
This only covers single-premium annuities, there are also period certain annuities, return of premium annuities and many more. The main point is to carefully evaluate any annuity and pay special attention to the inflation riders and how it is calculated, as well as understand the pros and cons of
the contract you are evaluating.”
Jason B. Ball, CFP®, ChFC®, CLU®, Ball Comprehensive Planning, LLC
When Setup Properly Annuities Can Provide A Lifetime Income Stream
“I am an independent insurance broker specializing in annuities – and yes – I believe annuities are a good investment.
When setup properly, annuities can provide a lifetime income stream for individuals and couples. That income stream can also increase each year based on moves in the CPI index. And once the income stream increases, it can’t go back down.
A guaranteed lifetime income annuity that increases payments based on moves in the CPI (or other inflation indexes) can be a valuable piece to any retirement plan. It acts as a pension plan and can reduce the financial strain that comes along with the overall market volatility we’ve experienced the last decade and a half.”
Adam M. Hyers, President, Hyers and Associates, Inc.
Annuities Are A Great Way To Make Sure Your Money Grows
“Annuities are a great way to make sure your money grows at a rate that outpaces inflation. Annuities are also often guaranteed not to go down when the market goes down. This means they are protecting you against losing everything in a crash as well, making them ideal for people who need to have a certain amount of money each month to live on when they are no longer working.”
Stacy Caprio, Financial Blogger, Fiscal Nerd
They Come With Several Costly Caveats That Do Not Make Them Worthwhile For Most Investors
“Annuities are not a great buffer against inflation. They provide guaranteed returns, but they come with several costly caveats that do not make them worthwhile for most investors.
Annuities typically have several fees (including administrative or death benefit costs) associated with them above the cost of investment fund management fees. Inflation-protected annuities have additional fees for this benefit as well.
Annuities payments are not guaranteed. If the insurance company an investor purchased from goes bankrupt, it is possible that the individual might lose their payments.
If the investor decides they no longer want to the annuity, there is usually a penalty fee to cancel it and withdraw the money.
In general, a better strategy would be to invest in low-fee options that return healthy dividends. Over time the stock market historically outperforms what an annuity can offer, so investors with many years to go will do much better putting their available funds into 401K and IRA options than to purchase annuities now.”
Isaiah Goodman, Becoming Financial
Good Investment For Inflation Protection But Should Not Be Used As Pure Inflation Protection Vehicles
“Annuities can be a good investment for inflation protection but should not be used as pure inflation protection vehicles. They should only be used as inflation protection vehicle if the investor has an additional concern such as running out of money too quickly, having a stable income for peace of mind, or having some form of downside protection. Most annuities offer a cost of living adjustment rider which allows the income to scale based on one of the economic inflation metrics. However, annuities are primarily insurance for running out of money too fast. The way this happens is that you either live too long, you can’t budget to save your life, or you panic every time the market gets volatile.
If you don’t think you experience one of these core problems than there are a variety of better investments, you can make to protect your self from inflation concerns. If you are conservative in nature you can buy Treasury Inflated Protection Securities. Not only are they guaranteed by the federal government, but they are very stable investment. Their payments adjust directly based on inflation, so it is a direct hedge for inflation. However, if you want the best inflation-adjusted investments then look no further than the stock market. Equities are the best available investment when it comes to inflation. The cost of your day to day goods will directly be represented in the cost of goods these companies sell.”
Alex Caswell, CFA CFP, Wealth Planner, RHS Financial
Annuities Are A Very Misunderstood Product
“Annuities are a very misunderstood product. Annuities are a popular choice for investors who want to receive a steady income stream in retirement. There are different types of annuities that can play a beneficial part in anyone’s holistic strategy. As an industry professional, I believe that annuities serve a purpose for anyone, and can’t fall into a lump-sum of good or bad.”
Danita M. Harris, Managing Member, Guice Wealth Management
Fixed And Indexed Annuities Will Almost Certainly Beat Inflation With No Risk Of Loss
“Most long-term instruments will likely beat inflation, and therefore are good for inflation protection; however, most individuals who are looking for inflation protection are also just as concerned with the safety of principal and long-term liquidity. Fixed and indexed annuities will almost certainly beat inflation with no risk of loss, offering significantly higher interest rates than most fixed instruments. Additionally, annuities are tax-deferred, resulting in an even higher effective rate of interest. Once the surrender period has expired (usually between about five and ten years), most annuities are completely liquid provided the account owner is age 59.5 or older, unless of course, the account is annuitized (set to pay out a guaranteed income stream, usually for life or beyond).”
Rob Drury, Executive Director, Association of Christian Financial Advisors
It Depends What Type Of Annuity You Choose To Invest In
“I think it depends on what type of annuity you choose to invest in. Inflation can be unpredictable, and since annuities tend to be long-term investments, they may not be the best way to protect your finances from inflation. Even in a fixed annuity, you would guarantee the same amount of capital in return, but inflation could potentially negate any capital gains from this type of investment.
However, you could take out an immediate annuity that would start paying out in the short-term, making it a very viable option. This way you could start receiving your investment in small parts over the course of time, which is better than receiving a lump sum in the distant future. Smaller short-term capital gains will help you hedge against rising inflation, and you can always halt your annuity in the event inflation rises unexpectedly in the future.”
Igor Mitic, Co-Founder, Fortunly.com
It Is Generally Not The Top Of Mind Reason One Would Purchase An Annuity
“Annuities CAN have a place in someone’s overall financial planning for part of someone’s overall assets. Inflation protection could be a component of the reason why one would purchase an annuity, although the more common reasons found involve potential guarantees of income for life and the death benefit…always for additional fees. There are step-up features whereby the income benefit base steps up each year, or where the death benefit base steps up annually…or both. The increasing income base can mitigate the effects of inflation, depending on the specifics of the particular feature. There is not a one-size-fits-all, in that annuities can be tied to the stock market [variable annuity], a fixed rate of return [fixed annuity], or tied to an index [indexed annuity]. The fees can vary depending on the insurance carrier and the ancillary benefits purchased. The distribution options can vary as well, depending on the income need. All of that said, while inflation protection can be a component of the features of an annuity, it is generally not the top of mind reason one would purchase an annuity.”
Jimmy Masters, AIF(r), CRPS(r), Vice President – Investments, The Alcaraz Fisher Justis Wealth Management Group of Wells Fargo Advisors
Although annuities provide guaranteed payments to investors, there is no overall consensus as to whether or not they provide good inflation protection. If you are thinking about investing in annuities, take into account what the financial experts have discussed in this article, and always do your due diligence.
by Sarah Bauder | Aug 28, 2019 | Inflation
Inflation protected bonds, or more specifically, Treasury inflation protected securities (TIPS) are Treasury bonds designed to protect against inflation. The principle of TIPS rises with inflation, and pays interest twice a year, at a fixed rate. In this article, industry experts discuss specific things investors should know about inflation protected bonds.
Best For Savings Not Investment
“Treasury inflation protected securities are meant to help protect your principal amount from the effects of inflation. Your invested amounts are adjusted regularly in accordance to changes in the consumer price index – the official inflation indicator in the country. And the inflation-adjusted principal amounts will be used to determine your possible interest earnings. Some important things to note about TIPS include:
It pays less than ordinary government securities: You can expect the interest rate for TIPS to be a few points below that of ordinary bills and bonds. But a TIPS holder stands to benefit in two ways; one is through regular principal amount adjustments in accordance with CPI changes and the second in form of the agreed interest.
Inflation is currently not an issue: TIPs is supposed to caution you against volatile changes in inflation like in the case of 2007/8 economic downturn when the purchasing power decreased by 3.84%.
The Treasury Direct account can be cumbersome: Unlike stocks, you can buy
TIPS directly from the government through a Treasury direct account. But I believe you are better off using a TIPS fund for two reasons. The managers are more experienced and therefore able to tell the best buys and also because it is more effective than using the sluggish Treasury Direct website.
Best for savings not investment: You are better off using TIPs for savings and not for investments because they post lower returns and are essentially designed to protect the principal amount from depreciating at the expense of earning solid incomes.”
Edith Muthoni, Chief Editor, Leanbonds.com
The Current Fed Policy On Interest Rates
“There is no doubt of an accelerating attraction to inflation-protected U.S. government bonds. The key to answering why this is occurring rests with the current Fed policy on interest rates. The facts are that the nominal and inflation-adjusted bond yields have dropped over the past 12 months (i.e., taking the 10-year U.S. government bond yields as an interest rate yardstick.) The economy is still chugging along in full-growth mode, thus exerting pressure on future yields and boosting bond prices still more. At the same time, the Fed’s go-to inflation gauge (measuring inflation over five years starting today) indicates an expected rate of just over 1.8%. We don’t expect the Fed to resume increasing interest rates until we see a small excess over the expectation. The scenario painted above points to inflation-protected bonds outperforming the categories with zero protection (i.e., nominal rate bonds). Even if reality overtakes expectations and the Fed pushes interest rates earlier than expected, inflation-protected bonds like TIPS (Treasury Inflation-Protected Securities) should continue to head the pack. The reasoning is that inflation will be back in play to spur the Fed’s change of direction, and therefore TIPS (indexed to the inflation rate) will continue to thrive. Either way, you are a winner in our view.”
Gordon Polovin, Finance Expert, Serves on the Advisory Board, Wealthy Living Today
These Types Of Investments Are Best Suited For Individuals Who Are In Or Approaching Retirement
“Treasury inflation protected bonds (TIPS) are designed to help investors protect against the effects of rising prices. These types of investments are best suited for individuals who are in or approaching retirement as they are a hedge against inflation and they provide the strongest bond hedge against default risk. TIPS also provide income in the form of coupon payments. These payments are generally paid semiannually and are based as a fixed percentage of the face value of the bond. The fixed-rate is applied to the principal, and like the interest payments, it can rise with inflation and fall with deflation. A couple of important things to note are that once TIPS mature, the investor will receive the greater of their original investment or the adjusted higher principal amount. Meaning the investor can’t lose money during a deflationary period. TIPS are best used in non-taxable accounts (Traditional or Roth IRA, etc.) because the increase in the bond’s value will cause a taxable event each year there is an increase.”
Jordan Sester, Founder/Investment Advisor Rep, J.S Financial Group
(Photo: Wikipedia)
You’re Better Off Owning Them In IRAs
“They’re not spectacular. Treasury inflation protected bonds TIPS are government bonds so there’s no default risk. The coupons are small. You run the risk of losing value if you sell prior to maturity. You will lose value in times of deflation. When the face value adjusts each year due to inflation it creates a taxable event. You’re better off owning them in IRAs where you won’t have to report taxes. They do hedge a risk.”
Chane Steiner, CEO, Crediful
Pay investors A Fixed Interest Rate As The Bond’s Par Value Adjusts With The Inflation Rate
“Treasury Inflation-Protected Securities (TIPS) are a form of U.S. Treasury bond designed to help investors hedge against inflation. These types of bonds are indexed to inflation, they have full faith and credit backing of the U.S. government. They pay investors a fixed interest rate as the bond’s par value adjusts with the inflation rate. TIPS pay interest at a rate that is fixed when the bond is purchased. Because the rate is applied to the adjusted principal, however, interest payments can vary in amount from one period to the next. The actual coupon payment (the amount of interest you receive), then, will fluctuate every six months, because it is calculated based on the new inflation-adjusted full value of the bond for the following year. One has to consider whether the variable income is a factor that fits their lifestyle, goals, and needs before purchasing.”
Jimmy Masters, AIF(r) CRPS(r), Vice President-Investments, The Alcaraz Fisher Justis Wealth Management Group of Wells Fargo Advisors
Inflation protected bonds protect investors from the negative effects of rising prices. As with any investment vehicle, there are advantages and disadvantages to investing in Treasury inflation protected securities. If you are interested in TIPS, factor in what these industry experts have discussed, and remember to do your due diligence.
by Sarah Bauder | May 30, 2019 | Inflation
The general consensus amongst economists is that US inflation is low. This was corroborated by favorable reports by the Department of Labor at the beginning of May. Yet, what trajectory will inflation take in the next half-decade? In this article, 5 experts weigh in on where US inflation is heading in the next 5 years.
The Fed Does Not Expect Inflation To Rise Significantly
“Inflation management is one of the primary roles of the Federal Reserve, so you can look to them for indications of inflation expectations.
The Fed will raise interest rates when it expects inflation to get above the 2% target. By raising interest rates, the Fed makes borrowing less attractive so spending and inflation will fall. Most recently, the Fed has announced that they do not plan to raise interest rates through 2021. This means that they do not expect inflation to rise significantly.
The Fed has also said they expect for unemployment to increase slightly. Again, this indicates low inflation. If less people are employed, then less people will have money to spend and create that upward pressure on prices that causes inflation.”
Brandon Renfro, Professor, Financial Planner
Not Much Organic Inflation
“Speaking as a consumer I do not believe there will be much ‘organic inflation’ in the next five years. A lot of people never fully recovered from the Great Recession. They’re saving a little bit more and do not fully trust the recovery. In addition the baby boomers are all approaching retirement age and will be living on fixed incomes. Healthcare costs are a major concern. According to statistics the economy is booming and yet a lot of people do not feel that is the case in their personal life.
Many people are working in Gig Economy jobs, which are in essence temporary assignments with no health benefits. Examples include driving for Uber, Lyft, Grub Hub, Door Dash, or Amazon delivery. These are not the type of positions, which fueled the economy in past generations.
Inflation is generally caused by consumers pumping a lot of money into the economy and taking on large amounts of debt. The wounds of the Great Recession have yet to heal. People are not automatically assuming they will be better off a year from now. Whenever one feels uncertain about the future they are reluctant to spend lavishly. Any spending they do is usually measured.
Having said that world affairs such as tariff wars and instability in the Middle East could cause inflation without any assistance from consumers. A major rise in oil costs could ripple through the economy causing prices to rise in other sectors of the economy. However, fear has a way of causing people to spend even less which leads to higher unemployment and recession. That would eliminate any inflation bubble.
We’re not likely to see any real inflation until the average working person believes the backbone of the economy is solid with good paying jobs. Right now adults are taking jobs from teenagers such as delivering newspapers, cutting lawns, snow removal, and working in fast food restaurants. This explains why there is a sudden push to make the minimum wage $15. We may not see historically high inflation for another 10 years!”
Kevin Darné, Author, Continuing Education Instructor
Rates Must Creep Back Up To Historic Levels
“Where’s US inflation heading in the next 5 years? – This is impossible to pin down precisely, but I believe that short of a recession, rates must creep back up to historic levels.
In spite of trade wars, government shutdowns and the resultant delay in statistics, the business cycle goes on. That said, corporations have used all the cost-cutting tricks in the world. Now is the time for increasing prices on the ground level as well as at the Fed Open Market Committee.
Complicating matters is that persistently low inflation and low rates hamstring the options that central banks have historically used to address crises. Again, in order to relieve this psychological pressure rates and inflation must creep up.”
Robin Lee Allen, Managing Partner, Esperance PE
A Modest Stagnation Of Growth Rates Can Be Expected
“Considering the latest development in trade and monetary policy, it can be expected that the U.S. inflation rate will remain at modest levels.
Given the uncertain outcome of the ongoing trade war, as well as highly leveraged corporate debt levels, which weigh on the outlook of the world economy, a modest stagnation of growth rates can be expected.
Another point to consider is the Fed’s shift in interest rate expectations. The expected monetary easing is an indication of concerns about low growth and geopolitical tensions.
Since the conundrum about the missing effect of the last quantitative easing programs still prevails, especially the question why full employment did not yield to higher inflation, it remains at least questionable if another round of quantitative easing would lead to higher inflation. The Federal Reserve Bank of St. Louis 5-Year Forward Inflation Expectation Rate (T5YIFR) dropped in the last year from 2.16% to 1.94% and from 2.47% to 1.94% within the last 5 years, even though the Fed deployed massive quantitative easing programs.”
Dr. Stephan Unger, Assistant Professor of Economics, Saint Anselm College
A Recession Within The Next 5 Years
“I predict inflation will stay around 2% for the next 3 years unless a recession hits sooner in which case I think the government will print more money and drive up inflation at a drastic rate. I think there will be a
recession within the next 5 years, so when that hits inflation may be as high as 10% in just one year.”
Stacy Caprio, Financial Blogger, Fiscal Nerd
Given economic indicators, the Fed has projected that there will be no real threat of skyrocketing inflation in the coming years. However, there are numerous variables that can shift which would alter that forecast. Ultimately, only time will provide the definitive answer.
