Q1 2022 Coffee Talk

The pressure and pain of inflation

By Ron O'Donnell, CEO, Stockman Wealth Management

Ron O'Donnell

It’s no surprise that inflation is the topic of the day. After all, it’s currently running at the fastest pace in over 40 years, and we are all feeling the pressure. Everything costs more these days; food, new and used cars, furniture, travel, even your morning cup of coffee.  The Dollar Tree chain of stores now charges $1.25! The biggest pinch of late is coming from gasoline. AAA auto club recently reported the expectation that most Americans will change their driving habits or lifestyle with average gasoline prices over $4 per gallon.

Overall, the average U.S. household is now spending approximately $275 dollars more a month because of inflation. Other factors contributing to inflation pressure include:

  • Covid which has created noticeable supply constraints, from empty shelves to a large backlog of container ships off our coastal ports.
  • Increased consumer demand due to being cooped up during Covid and fiscal stimulus checks that were doled out during the pandemic.
  • Wage growth. Average hourly earnings are growing at 5.70% year over year putting more cash in consumers’ pockets.

Yet, despite the growth in wages, the cost of inflation can become painful. $275 a month in increased expenses is a burden for families trying to get by, impacting middle- and lower- income wage earners more than those who can withstand the extra expense. Higher earners can cut back expenses; giving up an extra streaming subscription, dining out less or limiting vacations is much easier than for middle- and lower-income earners. For businesses, who are battling the same inflationary pressures, the growth in wages and salaries has an added impact, particularly with other expenses and input costs.

All of this is happening while housing costs, both home purchases and rents, are increasing, forcing the hand of the Federal Reserve to begin the process of tightening monetary policy. On March 16, the Federal Reserve raised rates by 0.25%, the first increase since December of 2018. The Fed talks openly about their ability to stem inflation with rate increases expected throughout this year. How high they will need to raise rates is yet to be seen.

So, what does this mean for you? While it will take a while for the rate increases to have an impact, it’s typically good news for investors and savers, as you begin to earn more interest on a variety of savings accounts. Conversely, inflation also impacts borrowing rates, which can result in higher monthly home mortgage payments and makes it more difficult to obtain mortgages and other loans.

On a positive note, there is an expectation inflationary pressures will begin to ease in some areas, hopefully by summer. At the same time, many believe other pressures will remain permanent, wage pressure being the main stay. This means investors will continue to face ever-changing economic conditions, an often-overwhelming amount of information from the media, and an increased number of investment choices.  It’s not surprising that the world of investing can seem complex, and possibly even more complex today.  That’s why we are here to help.

Stockman Wealth Management has a dedicated team of investment professionals with decades of experience encompassing various economic and market climates.  Through this, our professionals bring a tireless approach in helping our clients navigate market conditions to achieve their goals and objectives.  To learn more about how Stockman Wealth Management can be your trusted partner in achieving your personalized goals, please call our offices at 406-655-3960 or reach out to us via the web at www.stockmanbank.com.