Tyler Braun, Senior Financial Advisor, talks about supply and demand and why inflation can be good for the economy.
Hearing about interest rates and inflation. and most of my clients are asking why it is up or what is inflation. inflation is simply the cost of goods and services increasing from where they were before. normal inflation is actually good for the economy. if you think about it, inflation is driven by supply and demand
And the federal reserve is targeting about a two percent inflationary rate which means that the supply chain can just keep up with the demand for that product. hyperinflation or very high inflation can be a lag on the economy and it’s something that we need to pay attention to. ultimately with hyperinflation, let’s
Just use 10 percent as an example, if inflation is up by 10 percent that means you’re able to purchase 10 percent less, with the same amount of money as you were a year prior, right. think about that, the economy is driven by consumer spending and if you are able to buy less product that starts to put a damper
On future growth. two key factors are being driven by this. you think about the pandemic and what we faced over the last 18 months. we have put a lot of stimulus and money into the economy and into on mortgages, forbearance on student loans, a moratorium on eviction, stimulus checks that were sent out to individuals
And then the child tax credit of $300 per child, per month to certain families. families received extra money and a lot of people spent it, which drove up demand and desire to buy product. at the same time, we have had the largest clog in supply chain in the history of the united states, with the pandemic. we
Cannot even get the product off the ships fast enough to distribute it to satisfy the demand to buy the product right now. so, anytime you have a high desire to spend and a low inventory, the remaining product has to go up in cost, right. so, when we look at that, we know inflation is bad, when it is in that hyperinflation
Mode. the way that the federal reserve has to offset inflation is by increasing interest rates. so, you hear that, you say why does increasing interest rates have an impact on inflation? that’s a great question. so, let’s break it down a few different ways, right. when we look at interest rates going up put yourself
In the average american shoes. looking to purchase a home, looking to purchase a car. if interest rates are higher meaning that to financial institutions, paying more to banks you have less cash flow to buy other products. so, what happens is your demand or desire to buy those products comes down and it allows
The inventory to start catching back up, right? which ultimately if you have an oversupply of inventory that inflation or product cost can come down. that is a normal economy, okay? the issue is right now is not normal we’re in the midst of a pandemic and what we have to pay attention to is just because interest
Rates are going up in the short term it will not solve the logistical issues due to covid of bringing the inventory here faster. so we do anticipate interest rates going up in the short term, right? it could be three rate increases, it could be five rate increases etc. but we are still anticipating inflation to remain
Fairly high over the foreseeable future, until we can get the inventory back in line due to covid. so, ultimately if you have any questions please feel free to click the link below and reach out to us detail about how certain investments help hedge against inflation, versus ultimately just
Transcribed from video
Investment Planning: Inflation By Tranel Services