Inflation refers to the increase in the cost of goods and services of an economy. Various factors cause inflation, but they can be placed into two overarching categories: demand-pull and cost-push.1
Demand-pull is when consumer demand exceeds the supply of that good or service. This is usually indicative of a good economy or increased consumer spending.
Cost-push is typically experienced when the price of labor or materials increases, causing the price of goods and services to rise.
Consumer spending habits may be impacted during times of higher inflation. For example, when grocery shopping you may notice increased prices, making you consider what you need versus what you want.
When inflation increases, purchasing power is reduced. How can you make sure your income today will cover your retirement expenses? During times of high inflation, it may be prudent to revisit your budget and financial strategy. A financial advisor may be able to help you identify how to mitigate the impact of inflation on your retirement strategy.2
Inflation may also have a negative effect on your investments. Stocks may be negatively affected by periods of high inflation, as the stock market may be more volatile.3 However, investing in equities may help you outpace inflation long term. Investing during a period of low stock prices may result in gains, as periods of decline are often followed by periods of positive returns.4
Talk to a Park Avenue® Wealth Management financial advisor about how inflation can impact your investments.