If you want to spook an investor, just say “inflation” around them and see what happens. Seriously, though, inflation is always a concern for investors because a change in the inflation rate can have a drastic impact on the market for better or for worse.
How does an inflation increase affect the market?
Inflation refers to the sustained increase of prices and goods over a specified time period. An increase of inflation could mean the economy is struggling, but in some cases, it may be the sign of upcoming prosperity.
An increase of inflation can affect the market in many ways, including:
- Lowering purchasing power.
- Encouraging more spending and investing.
- Increasing the costs of borrowing.
- Stimulating market growth.
As you can see, an inflation increase can have both positive and negative impacts on the market. So, you might be wondering, what are the signs of a looming inflation increase and what should you do? Here is what our experts have to say.
Signs of a looming inflation increase
- Supply chain disruption — Local and global disruptions in the supply chain can affect supply and demand. In 2021, events like the Suez Canal blockage, the Colonial gas pipeline hack and the effects of COVID-19 in general have strained the supply chain around the world.
- Increased shipping prices — Whether due to reasons like those listed above or something else, when shipping prices increase nationally and internationally, it can be a sign of a looming increase of inflation rates.
- Increased prices of goods and services — As demand increases and supply is more limited, prices for goods and services go up. If this becomes a sustained pattern, then the government may decide to increase the inflation rate.
Talk to a ProVise CFP® professional about investing during an inflation increase
A solid financial plan should be prepared for market fluctuations and shifts in patterns, such as what could happen during an inflation increase. Avoid panic selling and instead, talk to a financial professional for guidance and assistance.
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about investing when the inflation rate is rising? Contact ProVise today to schedule a complimentary consultation.