Inflation! Should I Be Worried?

I don’t know about you, but recently every time I go into a store shopping for some item I am in need of there is a little sticker shock. It seems prices are rising on a many of the items we use on a normal basis. Gas prices have surged 56.2% in the 12 months ended in May. Food prices are rising but at a much slower rate than other segments of the market. Consumer prices rose at an annual rate of 5% in May. It seems more expensive these days for just about everything. There are many reasons prices are rising and you will hear theories from various sources blaming just about every possible cause. The reality is that there is no one specific reason, but many factors that come into play. Some economic, some political and some just the realities of worldwide economies trying to cope with the effects of a global pandemic.

If inflation is coming back at a higher rate than the US has experienced in the past 30 years, what should you plan to do about it? Economists debate whether the rapid climb in consumer prices will continue on this path or if this is just a transitory period adjusting prices as we climb out of a big decline in economic activity created by the pandemic. Supply chains have been stretched thin and will take time to recover creating more pressure on prices as demand increases. Wage inflation is occurring as employers are forced to pay higher salaries to attract workers back into the labor force.

These are somewhat unique times in that we have not experienced the disruption caused by a worldwide pandemic in modern times. The main issue with inflation is that it erodes the purchasing power of the dollar. The same amount of money buys fewer goods. So, while economists continue to debate the inflation issue and the Federal Reserve reviews its policies regarding interest rates and stimulus, what should you do?

It is important to stay attuned to what is happening in the market, but to not overreact to the daily news cycle. Review your investment allocation and determine if there are any rebalancing steps you need to take to keep you in line with your desired asset allocation. Talk to your advisor to understand how they will approach the potential of increased inflation. Maintaining an appropriate allocation in your investment portfolio is one of the best steps to take to help offset some of the impact of inflation on your hard earned invested money.


Written by:  Dennis Kelley, Managing Partner

These are the opinions of Dennis Kelley and not necessarily those of Cambridge, are for information purposes only, and should not be construed or acted upon as individualized investment advice.  Investing involves risk.  Depending on the types of investments, there may be varying degrees of risk.  Investors should be prepared to bear loss, including total loss of principal.  The strategies discussed herein are not designed based on the individual needs of any one specific client or investor.  In other words, it is not a customized strategy designed on the specific financial circumstances of the client.  However, prior to opening an account, Cambridge will consult with you to determine if your financial objectives are appropriate for investing in the model.  You are also provided the opportunity to place reasonable restrictions on the securities held in your account.