Meet the Flations: In, D, Stag, and Hyper
As we’ve seen the rise of inflation thus far in 2021, it is important to understand the different types of inflation to assess if there is a need for concern.
An increase in the price of goods and services within the economy. The cost of a specific product or service may inflate due to consumer demand, shortage of materials or increased wages, to name a few.
The opposite is true with deflation. When the economy experiences deflation, there is a decline in the price of goods and services. Although reduced costs sound attractive, it may be due to a lack of demand for the good or service. During deflationary times, there’s a contraction of the money supply, lower wages, higher unemployment and consequently, falling economic growth.
On the other hand, is the result of high prices coupled with high unemployment and suppressed demand for goods and services.
An over-the-top, out-of-control increase in prices. During this period prices are increasing by 50 percent or more per month. Hyperinflation occurs in severe economic turmoil.
Where are we today?
According to the US Inflation Calculator, the annual inflation rate for the 12 months ending May 2021 was 5 percent. This increase is not shocking considering the current circumstances in our economy — a shortage of materials, cargo ships idle in our harbors and businesses understaffed. However, as these issues get resolved, the spike in prices will recede.
Inflation can be good. As businesses reopen and consumers are ready to get back to a type of normal post-pandemic life, demand is expected to grow considering the influx of spending that will generate price increases, thus, a stronger economy.
It’s too soon to know how this scenario will play out; however, the Federal Reserve and Congress have the tools to abate the situation if undesirable forecasts are predicted.
Michele Sarna is a certified financial planner™ with Beacon Pointe Advisors and can be reached at (760) 932.0930 or firstname.lastname@example.org.
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