It’s no mystery. Inflation is becoming a problem. We thought it might be an issue a while ago when the economy started to come back and the FED continued easing. The FED then said the inflation was transitory, meaning it would only be here temporarily until it went back down to pre-pandemic levels. That no longer looks like it’ll be the case. What are the factors causing inflation? Is there a major force behind it? What are the industries that’ll be hurt the most and which industries will be unfazed?
Demand returns to normal
There are several factors causing inflation. Because of the pandemic, we saw demand evaporate instantly. Then, as vaccines started to roll out, demand started to pick back up again. Also, in the middle of the pandemic, the government sent out three stimulus payments and increased unemployment benefits. People realized what it felt like to bring in more money and sought out better-paying jobs, or demanded higher wages. Demand picked up and people started to make more money, so they had more disposable income.
The wage/price loop
The recovery got going, but the FED continues to buy bonds and keep interest rates low. What also happened was the supply chain crisis. Prices went up because demand stayed the same and supply dried up. There’s also a wage/price loop that takes place. Wages go up, so companies raise prices to make up for the increased cost of wages. Increased prices create wage pressures. Wages go up. Then prices go up to make up for the increased cost of labor. And so on.
What industries are affected?
There are several current industries and product lines that are being affected by inflation. The most notable is gasoline. But I don’t need to tell you that. I’m sure you’ve noticed when you go to fill up your tank. A lot of food items have also increased a bunch since before the pandemic. To be honest, I can’t think of many industries that aren’t affected by inflation. I would assume if you provide a service you can be more flexible with your charges.
Competition decreasing?
Something else that’s being said is industries are becoming increasingly centralized, so there’s less competition. If there’s less competition, companies are able to do what they wish with their product offerings and their prices. I really don’t know if that’s the case or not. I would think not because the current administration said they were going to limit anticompetitive practices, but who really knows what they’re actually going to do.
Related reading:
What Currently Presents a Risk to Markets?
What Does an Increase in Yield Look Like?
Why Financial Literacy Matters
Disclaimer:
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Jacob Sensible is a financial advisor with decades of experience in the financial planning industry. His journey into finance began out of necessity, stepping up to support his grandfather during a health crisis. This period not only grounded him in the essentials of stock analysis, investment strategies, and the critical roles of insurance and trusts in asset preservation but also instilled a comprehensive understanding of financial markets and wealth management. Jacob can be reached at: jake.sensiba@mygfpartner.com.
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