One of the more popular questions we’re getting from clients right now, and one of the things that you’ve actually seen a lot of headlines recently in, is concerns around inflation. So really what I want to talk about a little bit is “what is inflation?” and “why are those concerns justified or not?” Inflation in a general sense is the general rise of cost of goods and services over a prolonged period of time. A good example of this is if you’ve had conversations with your parents about when they were little and they may say things like “when I was little, I used to ride my bike down to the gas station and take $1. With my $1, I could get a coke, a hotdog, and still have change leftover for the gumball machine!” Well, you think to nowadays; what can you get from the gas station for $1? Maybe a Twix? This shows you it’s normal for over a prolonged period of time for things to have their price rise. It’s the same thing with salaries, that’s why salaries rise over a long period time. (Some people may argue that salaries aren’t keeping up with inflation right now, but that’s a conversation for a different day.)
So, if things are supposed to gradually rise over time, that’s natural and it’s good for the economy to have these types of things rise, why is there concern about inflation right now? Well, think back to what happened in the last year – the economy essentially shut down. So naturally prices had to go down to compensate for nobody being able to stay in hotels, nobody being able to fly airlines. Now you are seeing those prices rise as things are opening back up. There was also supply and demand issues; when the meat packing plants had to shut down, all the price of beef skyrocketed. Same thing with lumber right now, so many houses are being built and material is not readily available because of things being shut down, so prices are rising. Now those are very narrow sectors that are experiencing a rapid rise in prices, which is can sometimes be called hyperinflation (a very rapid rise in the rate of inflation). So that is why there is some concern about it. We talked about how inflation is normal, it’s good to have inflation over long periods of time. However, high inflation over a long period time is what people get nervous about because that means then your purchasing power is a lot less and your salary may not be increasing enough to keep up with the rise of expenses.
Now if you want to talk in more detail about what we see going on and why we don’t anticipate this high inflation to be something that’s going to stay, as always you can call us here at Next Step, we’d love to talk with you through that and talk with you about whether or not you should be concerned in your own situation about inflation. Our number here is 832-856-2825 if you’d like talk to us, and as always you all have a good one!