4.2% Price Increases and Millions of Unfilled Jobs: Inflation’s Impact on Households and Businesses

  • First Bank
  • 09/01/2021
  • Business
  • Article

The term “inflation” has been circulating in the headlines and on the news for some time now and, unfortunately, doesn’t seem to be going away anytime soon. Put simply, inflation is described as an increase in prices coupled with a decrease in the purchasing power of money.  From an increase in demand from consumers for certain goods and services to impacts on suppliers to be able to meet those demands as Americans emerged from the first wave of the pandemic, inflation has impacted consumers and businesses in a myriad of ways.

To put inflation into perspective, Americans have seen an estimated 4.2% increase in prices over the past 12-months. According to data published by the U.S. Labor Department in August 2021, the average inflation rate in the U.S. has held steady at 5.4% for the last 12 months (ending in July of 2021). While consumer spending slowed due to the rise in new COVID-19 infections from variants to a meager increase of only 0.3%, the average annual inflation rate is still at a 13-year high.  

Charles Claver, Senior Vice President, Director Investment Management & Trust and Family Wealth Advisor for First Bank Wealth Management, provided some insights on inflation from the past, present, and future as well as what it all means for investors. According to Claver, pandemic-related supply disruptions, stimulus fund money, commodity pricing, labor and wage pressures, basic supply and demand imbalances, and more are all contributors of the inflation we are seeing today.

“At the heart of this spike in inflation is basic supply and demand imbalances,” said Claver. “Although some of these imbalances could prove to be temporary, others, such as wage and labor pressures, could be longer term. For example, the market for used cars rose at least 7%, each of the last three months, primarily due to the Asian computer chip shortages and people wanting to travel again. This, as well as hotel room charges and airfare, have accounted for roughly half of the price increases that we’ve seen and are the primary drivers of the inflation we are seeing.”

He went on to explain that the Bloomberg Commodity Index, or a broad gauge of different commodity prices, is at its highest level in six years. “Just in the last year, natural gas went up 118%, coffee went up 79%, corn is up 69%, and wheat is up 35%,” he said. “Not to mention, we passed $3 per gallon for the first time since 2014.”

In addition to supply and demand challenges and rising prices, businesses are also having to cope with labor issues. In a recent survey by the NFIB Research Foundation, 49% of small business owners are reporting job openings they can’t fill. This is leading to companies having to do without staffing or paying higher wages to both attract and retain workers. “There are now approximately 9.2 million unfilled positions in the market, or the highest level in two decades. As a result, the U.S. has generated more wage inflation than it has at any point in the last 40 years.”

Read Pandemic Emergence: A Business Line of Credit May be the Shot in the Arm Your Organization Needs.

Are there things we can do?

Regardless if economic inflation, wage inflation, supply constraints, labor challenges, and wavering consumer confidence are here for the short-term or the long-term, it’s important to have a solid plan in place. According to Claver, “The market doesn’t seem too concerned with inflation right now and that’s a good thing. However, there are some ways to protect your portfolio with inflation-hedged investments like Treasury Inflation Protected Securities, or TIPS, direct real estate, and stocks.”

To ensure you are appropriately invested to meet your long-term savings goals, schedule a portfolio review with a First Bank Wealth Management trusted advisor.

You’ll also want to have the right credit solutions in place for you and your business during the peaks and valleys of the economy while it continues to maneuver the impacts from the pandemic.

Developing a solid relationship with a trusted financial services partner is also essential to helping you, your family, and your business navigate all financial seasons.

To learn more about inflation and to watch the full presentation: Webinar: Operating Challenges with Inflation, Supply Chain, and Labor.