Financial Planning

The Impact of Rising Prices

February 01, 2022

You may have noticed prices going up — when you check out at the grocery store, fill up at the pump, and most certainly if you’re shopping for a new car or home.

We are in an inflationary period. As you can see in the chart below, the price of consumer goods, as measured by the Consumer Price Index (CPI), rose 7% last year and the price of gasoline skyrocketed nearly 50%.1 In addition, the price of a new car rose 13% to an average of more than $46,000 in November, with most buyers paying over sticker price. Every type of vehicle costs more, primarily due to a microchip shortage, which is expected to continue through 2022.2 Inflation is at its highest level since 1982.

Price Increases (CPI) from December 2020 – December 2021

Category

% Increase

All items

7.0%

Food

6.3%

Food at home

6.5%

Cereals and bakery products

4.8%

Meats, poultry, fish, and eggs

12.5%

Dairy and related products

1.6%

Fruits and vegetables

5.0%

Nonalcoholic beverages and beverage materials

5.2%

Other food at home

5.6%

Food away from home

6.0%

Full-service meals and snacks

6.6%

Limited-service meals and snacks

8.0%

Energy

29.3%

Energy commodities

48.9%

Fuel oil

41.0%

Gasoline (all types)

49.6%


Source: 12-month percentage change, Consumer Price Index, selected categories (table), not seasonally adjusted, U.S. Bureau of Labor Statistics, December 2021.

What’s triggering price increases? There are several variables coming into play, including pandemic supply chain issues leading to unfulfilled demand. In addition, many companies are having trouble recruiting and retaining workers, forcing them to offer higher wages. And some economists argue that the stimulus packages, meant as a lifeline to those who cannot work, are an additional factor because they flooded the economy with cash.

Is there cause for concern? The Federal Reserve is keeping close watch and is expected to increase interest rates soon to contract the money supply and curb price increases. We also expect continued improvement in labor force participation to help alleviate production and delivery bottlenecks. At this point, we believe there is no cause for alarm.

Near-term Impact? As consumers, we should expect to see higher energy, food and other expenses in the coming months and budget accordingly. As investors, we may see some downward pressure on valuation for both fixed income and equity securities; however, with a still relatively strong underlying economy, higher interest rates and lower financial market valuations may present attractive investment opportunities.

What should you do if you have questions? As always, we are monitoring inflation trends and their impact on interest rates and financial markets. Your Washington Trust Wealth Advisor would be happy to have a conversation with you regarding current market conditions and the impact on your financial plan and investment strategy.


1 On the money – inflation hits highest level in decades, Yahoo!news, January 12, 2022
2 Average New Car Price Increases for Eighth Straight Month, Kelley Blue Book, 12/10/21

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Any views or opinions expressed are those of Washington Trust Wealth Management. The information provided does not constitute legal, tax, or investment advice and it should not be relied on as such. It does not take into account any investor's particular investment objectives, strategies, tax status, or investment horizon. Please consult with a financial counselor, attorney, or tax professional regarding your specific investment, legal, or tax situation. It should not be considered a solicitation to buy or an offer to provide investment advisory or other services. All information is current as of the date of this material and may change at any time without prior notice. The information provided is solely for informational purposes and has been obtained from sources believed to be reliable but its accuracy is not guaranteed.