It seems that inflation is everywhere. You’ve seen it at the grocery store, at the gas pump, and reported in the news. We have a lot of elements adding to the inflation story.
First, the consumer is flush with cash. The government has given consumers around $3,200 since March 2020. While many used this stimulus to compensate for cut work hours and lost jobs, many saved or invested this found money. Now that the economy is beginning to open with restaurants accepting full capacity and stores relaxing mask mandates, consumers are ready to spend. Couple that with supply chain disruptions caused initially by China’s manufacturing shutting down and compounded by minimized inventories, a shortage of truckers, and debacles with the Suez Canal and the Colonial Pipeline, and you have a perfect storm for restricted supply. Restricted supply and increased demand is the perfect recipe for inflation.
However, let me put our current inflation into perspective: According to the Department of Labor, inflation, as measured using the “Consumer Price Index,” was up 9.0 percent in 1978, up 13.3 percent in 1979, followed by 12.5 percent in 1980, and up 8.9 percent in 1981. Today’s annual inflation reading is 4.2 percent for the 12 months ended April 2021 Inflation is a natural part of an economic cycle. Aside from asking, “Why is chicken so expensive?” or “Do you know where I can get cheap gas?” the popular question is, “How do I invest through this?” Well, let’s take a look.
Commodities are the basic raw materials used as production inputs for the finished goods we consume every day. With inflation, it takes more dollars to buy commodities, leading to a perception that they are worth more, or have increased in value. In my opinion, stocks are the best vehicle for long-term growth. During inflationary times, I generally recommend larger percentage allocated to the non-durable goods sector, as they can pass inflation costs almost immediately to consumers. It includes consumer staples like food, utilities, toilet paper, and other necessities, as well as fuel. These businesses should be able to maintain profit margins and dividends and serve as a hedge against inflation.
William G. Lako, Jr., CFP®, is an Executive in Residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial and a co-host on Atlanta’s longest running, most respected financial talk radio show “Money Talks” airing Saturdays at 10 a.m. on AM 920 The Answer. Mr. Lako is a CERTIFIED FINANCIAL PLANNER™ professional.