Kahan on Inflation: The Elephant in the Room
Just fourteen weeks ago we checked in with Scott Kahan, a Certified Financial Planner professional and President of Financial Asset Management Corp. in Chappaqua and NYC. He gave us his take on the rising chatter about inflation and what it means for your financial plan. (See Kahan on the Roaring Twenties) As the inflationary prognosis has changed from “temporary” to “more persistent”, we thought we would check in again to see what he’s thinking
In terms of conventional wisdom on inflation what’s changed and where are we now?
We are now at inflation levels at or exceeding five percent. What was once described as temporary are now seen as “more persistent”. Which is currently defined as months to a year. But inflation projections by most economists and market analyzers for 2024-25 are 2% – right where the Fed wants us to be.
How do you explain this?
I think it is important to realize that most of the inflationary pressures from supply chain issues that are increasing retail prices to home prices and unmistakable signs of wage inflation are all pandemic related. And, as we are reminded daily, the pandemic is not over. And they are all arguably connected. As consumer dollars are diverted from, let’s call them pandemic sensitive parts of our economy such as travel and entertainment, to less-sensitive parts of the economy like a wide range of household items, demand for those items exceeds supply and prices go up.
Employers in turn can’t meet demand because they can’t find workers who have the skills they require. This in part is pandemic related as some workers may be less motivated to find jobs in the riskier environment of the coronavirus. Employers must increase wages to attract workers and wage inflation is now showing up in our economy.
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