Inflation Concerns 2023
Inflation may have peaked according to the latest CPI jobs report sending markets into a big rally. The hurdles in the economy examine whether the latest crypto meltdown is leaving spillover effects on the equity markets considering what potential gridlock in Washington may mean for the markets in the year ahead. Last year’s big concerns on inflation and rising rates have carried over in 2023 and are joining declining earnings to challenge the markets. Inflation is about supply and demand as a lot of money is chasing goods and services and increasing prices for consumers. As the economy recovers from the pandemic people have record savings combined with high demand for products and services including home improvements, travel, automobiles, to commodities. Pent up spending has delayed parties and celebrations postponed meaningful gatherings due to the latest pandemic crisis now facing high inflation rates in 2023. People are willing to pay more for everything they missed over the past few years, thrilled to get back to normalcy of what is typically expected even though we have to pay more for it.
An increase in consumer spending on travel, airlines, hotels, florists, caterers, and consumer products is a welcoming sign in 2023 for businesses that have suffered during the pandemic. Inflation can not be measured in the prices of goods and services over time. Inflation cannot be measured by an increase in one product or service or even several products and services. Inflation is a gentle increase in the overall price level of goods and services in the economy. Food and energy make up an important part of the budget for most households as policymakers seek to stabilize overall consumer prices as core inflation measures that leave out items with volatile prices can be useful in accessing inflation trends. While older people may be more vulnerable to an increase in healthcare costs, and general living expenses, younger people are also affected by inflation who may be paying for college tuition, raising children, and paying for childcare services. Inflation is not consistent across the board as it affects every aspect of daily living from postponing an exciting dream vacation to destinations unknown or buying groceries and paying medical expenses in 2023.
Even small amounts of inflation can seriously erode your purchasing power and net worth over time negatively impacting your life experience. The Fed considers 2 percent inflation to be the sweet pot to keep the economy ticking along but not overheating, says Shwab. Understanding the topic of inflation is necessary for a volatile financial environment. It is more important to take appropriate action to help protect yourself against high inflation over time. The strongest defense against long term inflation is maintaining a globally diversified portfolio creating sound investments with asset allocation. Over long periods of time stocks have historically outpaced inflation and fixed income funds including bond and money market funds will generally reinvest in newer holdings that may have higher yields. Asset allocation and diversification remain the best ways to control portfolio risk during volatile markets, says Schwab 2023.
Cheers!
Patricia Lynn
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