Should We Be Worried About Inflation?

Richard Fang

Well, at least the working majority of the world

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engin akyurt / Unsplash

For the last year, we’ve seen stock markets rebound, the job market prosper, and everyone returning back into a post-covid working rhythm.

However, peering over these positive outlooks lies a nastier concept if allowed to grow out of hand, and it’s known as inflation. We’ve seen inflation rates steadily increase worldwide, although not yet at an alarming rate in some.

There is no doubt, however, that it’s soaring in a worrying trend in some of the world’s largest economies, including the US and China. The US consumer prices are racing quickly ahead, faster than what we’ve seen in decades since the 1990s.

What’s fueling this?

Most of this change recently has been the direct result of supply chain lockups in countries like China. To put it in some perspective, world food prices are up 30% in just over a year.

However, if looking at it from a wider picture, most of the increase has been powered by not only food but also fuel (almost 50% rise in US gas prices since Oct 2020), shelter and used car prices (I’m sure we’ve all noticed this one).

“We are concerned about the passthrough from producer prices to consumer prices,” said Zhiwei Zhang, chief economist for Hong Kong-based Pinpoint Asset Management.
“Firms managed to use their inventories of inputs as a buffer to avoid passing the higher costs to their customers before, but their inventories have been depleted.”

As consumers, we’ve seen a considerable shift to changing perceptions of the economy. Surveys across the state have seen the view of inflation shift from neutral to negative as more have started to outline their concerns about it.

Since earlier this year, we’ve seen the CPI (consumer price index) shift above the average hourly earnings of all employees. Although the positive is, we’ve seen people return to employment (or find new jobs), the CPI is still outpacing average earnings.

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US Bureal of Labor Statistics

Could it just be strong demand as we shift into a post-covid lockdown?

For the Federal Reserve, this is the view.

As countries come out of lockdown, we’ve seen enormous demands across the board in all goods and services, which has resulted in a supply issue. This view means this shift will be ‘temporary’, and we will see inflation return to normal.

However, countering this view, ‘temporary’ could also mean a timeline from months to years. On the complete pessimistic and worst side of things, this could eventually result in a global recession.

Of course, the longer this continues, the more our purchasing power as consumers will suffer as inflation outpaces wage growth.

My opinion — start protecting yourself

Savings are at an all-time high, and this isn’t necessarily a bad thing. However, sticking your money in the bank isn’t also a good thing if inflation is high.

You’re losing money, and the only way to beat this is to either match or stay above the inflation rate.

If we see another economic downturn, you will need to protect yourself and have contingency plans.

This means you should:

  • Find more income sources, including side hustles (I made a small video on a way to do this)
  • Look to invest your money beyond sticking it into the bank. For me personally, I put my money into a mix of investments, including risky types (crypto, growth stocks), index funds and more. Of course, how you do it is up to you and make sure you understand the risks involved.
  • Find ways to reduce the money you spend by auditing your habits closer
  • Ask for a wage increase. Many employers know their employees are looking to hop jobs, so it’s a perfect time to request one.

Inflation won’t necessarily ‘screw’ us, but it’s the consequences of it that might cause some turmoil.

This is why stepping ahead of the game will be essential, so you don’t leave yourself out to dry if we do head into a worst-case scenario.

What are your thoughts on the situation — let me know in the comments!

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