Mixed Signals on Inflation

Are you having a tough time keeping track of inflation’s mixed signals? You’re not alone.  Inflation has been a constant talking point this year and it can make us uncomfortable.  As written by a colleague, inflation can be a scary word.

Consumer prices in July climbed at their fastest rate since August 2008. Worse, producer prices, which can be an indicator of future price changes at the consumer level, rose at the highest rate since tracking began.1

However, in recent weeks, the stock market has shrugged off the inflation news, believing that the worst is over and rising prices will moderate in the future.

It’s important to remember that the stock market is a discounting mechanism, which means it’s always looking forward. Put another way, the stock market’s price today represents all available information about current and future events. How far forward is the stock market looking? Most would agree it’s “discounting” activity six to nine months into the future.2

Does that mean inflation will be lower in six to nine months? That’s what the stock market is suggesting. But the stock market also has a less-than-perfect record as a discounting mechanism, largely because the future is somewhat unknowable.2

So, what does all this mean to you as an investor?  Well, the first thing to note is how inflation can affect your overall portfolio. Bill Gordon wrote an article about inflation and the real rate of return, which sheds some light on inflation in general.  It is imperative that you take a look at your overall financial picture and takes steps according to what you are trying to accomplish.  There will always be obstacles to overcome what trying to reach your goals and we can help you with that. 

Inflation is just one factor to consider when making adjustments to a portfolio. But if you’re unsure, thanks to the mixed messaging I’ve seen lately, please reach out. We’d welcome the chance to hear your perspective.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly. 

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. 

1. CNBC, August 11, 2021

2. Investopedia.com, April 28, 2021

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