By: Bill and Cindi Porter, AILERON INVESTMENT ADVISORS
Q: Why is there so much discussion about inflation?
A: Because it is a big deal and it appears likely that increased inflation will be a factor in the near future. For older Americans who lived through the 1970s, the reality of the ravages of inflation are a vivid memory. Every trip to the store was more expensive than the
trip before. Only by raising interest rates significantly in the early 1980s were the flames of inflation finally doused. The cure was a financially painful process – but necessary. In 1981, some Americans had an 18% mortgage.1 It was a scary time.
In the past several years, inflation has been relatively tame compared to the 1970s. However, the booming economy just prior to the COVID lockdowns is now beginning to pick up where it had left off. Additionally, trillions of dollars in pandemic relief checks have caused a major spending increase by consumers.
The numerous “Now hiring – and signup bonus” signs popping up everywhere suggest everything is probably going to be more expensive in the near future. Your income – whether from a job or earnings from investments, must keep up with inflation. Unfortunately, even in times of “low inflation” many people still fall behind. For example, in 1990 the average household income was $69,892. By 2019 it was $90,021 – a 23% increase. However, at the same time the price of a new car was up 78%, a new house 156%, a postage stamp 120%, a gallon of gas 128%, and so on.2 However, if we experience “high inflation” again, it may be devastating to the unprepared.
Could your income be prepared to increase with the rate of inflation? It may be a good time to have a frank discussion with your trusted advisor.
Sources: 1. https://finance.yahoo.com/blogs/just-explain-it/why-mortgage-rates-matter-152241574.html Accessed June 3, 2021. 2. https://www.franklintempleton.com/forms-literature/download/BB-FLIE1 Accessed June 3, 2021
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