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  • Writer's pictureNate Baim, MBA, CFP®

Should you be concerned about inflation?

Enjoy this week's edition of the Planner's Beta

Beta (n) - climber's jargon that designates information about a climb This digest's purpose is to share observations, ideas, and treasures found this week which you may also find insightful. Sharing does not mean it's an endorsement. I am endorsing the pursuit of knowledge and exploration.

An Announcement From the Baim Household

Becky and I are excited to announce we will have a new addition to the family sometime in late June! From the growing Baim family, we wish you happy holidays!

Are you concerned about inflation?

Several folks I've worked with this past year voiced concerns about inflation increasing. Their concerns are valid. And we should remain vigilant about inflation, but significant inflation seems unlikely in the immediate future. Like during the Financial Crisis, many talking heads on TV are growing more vocal about massive inflation on the horizon. I agree with this piece from the Economist; we should listen to inflation concerns, but it is not apparent that significant inflation is immediately around the corner. Some hypothesize inflation may come because of the recent dramatic increase in money supply, productivity may diminish, and central bankers are willing to allow inflation to run hotter than in the past. These are valid arguments we need to listen to and keep in mind.

However, many data points suggest high inflation (double-digit) rates are not right around the corner. First, just as the Fed increased the money supply, the rate at which money changes hands dropped significantly this year. Economists call this velocity. And so long as money velocity remains low (or continues to drop), we are unlikely to see significant inflation in the near term. Second, unemployment is currently 6.7%, and the labor force participation rate is 61.5%. Such high unemployment and low participation rates provide slack in the economy, making wage increases less likely (which feeds into inflation). Third, the market does not see inflation on the horizon. Looking at the 10-Year Breakeven Inflation Rate, we see the markets expect inflation to average about 2% over the next ten years.

However, looking at a longer horizon (more than five years into the future), I believe the inflationists' arguments hold more water. I expect inflation to be higher than what we experienced in the recent past (but not double digits). My hypothesis primarily stems from the Fed's new policy direction set back in August. The Fed's willingness to let inflation run hotter, coupled with its massive balance sheet, I suspect, will be the primary mechanism of increased inflation over the long-term.

Additionally, if policymakers' grow an appetite to address the significant debt balances, they may be incentivized to influence Federal Reserve policy. Because of our checks and balances system, the executive and legislative branches cannot directly set monetary policy. However, assuming debts become a concern, it is possible for future appointees to the Federal Reserve will be more dovish (accommodating toward inflation) as policymakers hash out ways to deal with the significant amount of debt. Inflating debt away is a policy some economists suggested recently. It is also worth pointing out politicians may want a dovish Fed for other policy initiatives, as this Vox piece shows. In other words, loose monetary policy can increase or decrease debts; it depends on the priorities, balance, and duration of power in Washington. Adopting such policies would require coordination with fiscal policy, which takes time. Such policies introduce risks for savers and income earners.

Inflation can destroy wealth. With the cost of everyday items going up, savers who hold significant cash sums can see their buying power diminish. So, how does one protect one's wealth from inflation? As this Wall Street Journal article points out, equities have their own risks, but tend to be a good inflation hedge for the long term. With a financial plan and a long-term perspective, investors will better understand the risks the economy throws at them and the potential impact on their wealth.

Monthly Financial Planning Item

This checklist covers several planning issues that you should consider before updating your estate plan.

All too often, I see folks with no estate plan. Estate planning is the process of determining how your wealth will pass on to your heirs. Even those who are young need to create an estate plan. This vital task often gets pushed off. Doing so can result in stress and pain for your heirs in the unfortunate event you pass away. Whether you are single or have a young and growing family, I encourage you to review this guide. Use this guide to identify areas you need to address so that your estate's transfer is as smooth as possible. This checklist covers 18 of the most critical planning issues to identify and consider before updating your estate plan. The checklist includes:

  • Beneficiary & Fiduciary Issues

  • Assets & Property Related Issues

  • Minors & Children Related Issues

  • And More

Take the time to consider the items on this list to uncover any items needed to be included in your estate plan. Having a systematic process helps you better identify planning elements that could benefit you and your heirs this year and beyond. If needed, feel free to place time on my calendar.

Quote of the Week

"The way to get started is to quit talking and begin doing." - Walt Disney


Have something on your mind? Schedule a free call with Nate.


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