Navigating the unknowns caused by Inflation

 

The rising inflation rate has been a hot topic in recent months because of the high cost of commodities. With the surge in the prices of basic goods and an unstable economy, how are you keeping up? We need to pay attention to inflation as Inflation expectations matter because they change how people behave. 

For example, if news outlets announce that oil companies will hike gasoline and diesel prices at midnight tomorrow, consumers today will race to the gas stations to fill up, spiking demand and stoking prices further. 

This mentality applies to inflation as well. If people expect inflation to rise in the coming months, not only will consumers hoard basic goods, but workers will also lobby for higher wages, and firms will also revise their menus or price lists to safeguard their profits. 

All these effects add up to further inflation. In this sense, the original expectations become “self-fulfilling prophecies.” 

How Inflation Impacts The Stock Market 

Inflation’s presence is felt much heavier in the equities market, a place where the future is the present, and emotion or fear often take over. 

* Profit margins - When inflation goes up, so do costs, and when costs rise, profit margins fall. That is, of course, unless you raise prices to counteract that movement, and most companies will have to eventually. The difference is in which types of companies can afford to do so. 

* Growth companies - Reduced purchasing power would compel companies to lower their prices. This makes borrowing money more expensive and weighs on a lot of startups and growth companies that depend on borrowing boatloads of cash to get off the ground. These stocks are often hit the hardest during times of inflation because even if the future seems promising, investors are scared at the moment. 

* Harder to value stocks - When we have predictable, sustainable levels of inflation, it’s relatively simple to calculate the future expected value of your money, but not so much when we’re seeing the numbers we have now. With heightened inflation and without knowing when it will finally let up, it’s hard to say how valuable equities are anymore. 

What you can do 

💳 Re-evaluate your spending strategy - Now is a great time to zoom into what you’re spending on and how it's been trending to consider where you might want to cut back or re-allocate. 

🏠 Consider real estate if you’re thinking long-term - Some people are jumping at the opportunity to buy to lock in mortgage rates before they climb higher, while others don’t want to risk taking on debt on already sky-high prices only to see home prices possibly decline. If you’re looking to buy a home and not planning to own it for long, you run a higher risk of losing money on it. 

🚀 Don’t shy away from equities - Berkshire Hathaway has been going shopping during a moment where seemingly everyone else is fearful, and it might be a good idea to do the same. Most bonds won’t outrun inflation like equities are likely to in the long run, and markets are usually resilient once a recession ends too. 

Learn the right skills - Ingenuity - along with SKILLS - are two things that can never be stolen by thieves, confiscated government, or lost to flood or fire or A MARKET CRASH. And that is why the absolute smartest thing you can do right now is learning not just any skills, But the RIGHT skills. Learn how to sell. Sales is a critical life skill you can use at any point in your life.

Where’s the light? 

All of this leaves us with more questions than answers, and the one thing that’s certain right now is uncertainty as the world tries to correct its elongated tailspin that started back in 2020.

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