Is Inflation Here to Stay?

the power of zero

Inflation is here, the question is “Is it here to stay?” Consumer prices soared in October 2021 and are up 6.2% from a year earlier, the fastest increase in over three decades.

We’ve grown accustomed to inflation of 2% a year, so the current level of inflation is considerably higher than economists have expected and is having some serious impacts on people’s daily lives.

High inflation will likely be with us well into 2022 and beyond.

The reasons prices are rising are complex. One of the variables is supply and demand and for goods ordered online, demand has far outgrown the ability of the market to produce. We have grown accustomed to ordering online and that trend is likely here to stay.

Shipping container costs from China have increased, in some cases up to 15 fold, and those prices have to be passed on to consumers in order for the supply chain to still function. The same is true with labor, and those increased costs are the unintended costs of the increase in demand.

Increased demand and reduced supply is the perfect formula for increased inflation over time.

Supply chain conditions continue to be stressed which is only exacerbating the problem of disruption and increased prices. There are over 500,000 shipping containers in Southern California alone waiting to be offloaded and processed.

From shoes to hot tubs, there is no industry that is unaffected by the supply chain disruption. These challenges are going to continue for the next year at least.

We should be getting used to higher prices as the new normal.

Paul Tudor Jones says inflation is here to stay, and it poses a major threat to the US economy. Maya MacGuineas feels the same way.

Inflation is not just a supply and demand issue, it’s also being driven by the money printing that has happened over the past decade and which has recently exploded during the pandemic.

We have a tremendous amount of money that has been injected into the economy, and when you have more dollars chasing fewer goods, that drives prices up.

In a rising-inflation environment, you don’t want to invest in a fixed-income vehicle. Stocks and equities are better options.

From the Power of Zero perspective, the number one threat to your retirement is longevity risk. If you have guaranteed lifetime income, it must be indexed to inflation.

If your pension and/or Social Security are not enough to cover your living expenses in retirement, the shortfall should be covered by an annuity, but to protect against inflation, the annuity needs to be a particular type.

If your annuity is not adjusted for inflation, a high-inflation environment can kill your retirement portfolio. A fixed indexed annuity that’s linked to the growth of the stock market protects you from that risk.

For the rest of your stock market portfolio, you need those dollars to compound in a fairly aggressive way to keep pace with inflation.

With your basic needs covered, you have a permission slip to take more risk in your stock market portfolio. This also allows your portfolio to recover during down years instead of forcing you to take money out during those years which can put your portfolio into a death spiral.

The LIRP is another excellent place to draw money for discretionary expenses during the years the market is down. The Volatility Shield covers this strategy in depth.



Mentioned in this Episode:

How the supply chain caused current inflation, and why it might be here to stay –

Paul Tudor Jones says inflation could be worse than feared, biggest threat to markets and society –

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