The signs are all around you. Gas prices at the pump are up 47% from a year ago. New cars, if you can find one, are selling for more than the sticker price. Houses in Portland have appreciated 19% year over year.
Unless you are over the age of 50, you probably have no recollection of meaningful inflation. Annual inflation has been under 4% for almost 20 years. It has hovered below 2% for almost a decade. But ask those who lived through the 1970s and 80s and they will tell you about double-digit mortgage rates, long lines at gas stations and big grocery bills.
In response to the devastating economic impact of COVID-19, the federal government has taken unprecedented action to bolster the economy and protect vulnerable Americans. Congress has approved roughly $3 trillion in relief spending in four different packages. The Federal Reserve reduced its key interest rate to essentially zero and massively expanded its balance sheet to support financial markets.
Inflation was up over 5% in May compared to a year earlier. The Fed continues to believe that inflation is not a problem. But a growing chorus of economists and market analysts believe the Fed will be forced to raise interest rates sooner than it has suggested.
What's next? Time will tell. But you should probably plan for inflation. At just 4%, inflation doubles prices in 18 years. So, make sure your financial plan can withstand higher prices in the years ahead.
Springwater Wealth Management
6600 SW 105th Avenue, Suite 155
Beaverton, OR 97008