A challenge to financial markets this year has been the soaring rate of U.S. inflation. Recent reports of an annualized rate of over 8% in April remains close to the fastest pace in four decades. Prices for groceries, airline travel, dining out and other services are rising as consumers shift their spending patterns. In fact, airline fares increased almost 19% from a month ago at the fastest rise on record, and gas prices have risen more than 40% from a year ago.
In an environment where prices are rising everywhere, investors may be anxious. Headlines about a “recession” are dominating the news as the U.S. Federal Reserve raised its benchmark again this week with promised further rate hikes in 2022. The impact of these moves has pushed mortgage rates, car loans and floating rate debt – like home equity lines of credit – higher.
While the soaring rate of inflation cannot be controlled by an individual, and no one can one guess the future direction of financial markets, we share with you below some tips that may help lessen the impact of inflation on your friends’ and family’s finances (maybe you can use some too):
- Consider using your savings to pay down credit cards and other loans that have variable interest rates that will certainly move higher. Check with lending institutions to confirm the current interest rate and monitor it monthly.
- Do you really need a new car, a new home or new appliances? If you can wait, do so. No need to panic and make purchases because of inventory shortages.
- With a surge in food prices and labor shortages, consider a picnic or potluck with friends instead of dining out.
- Ride a bike or carpool to work or to see friends and run errands more efficiently to save gas.
- Brew coffee and tea at home and make your own lunch.
- Seek out free entertainment or programs offered during the summer months.
The pressure of rising interest rates has impacted financial markets in many negative ways. However, a positive impact for those who are “savers” should be higher interest earned on money market and savings balances.
In addition, interest payments from new bond purchases will be much higher than those offered for most of the past decade.
Unfortunately, inflation rates may not ease in the short-term, and expectations will continue to cause volatility, yet a disciplined investment plan and strategy remain the soundest advice over the long-term.