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So you’ve just filled up the 16-gal. fuel tank of your Toyota Camry. At $4.27 per gallon,1 that’ll be $68, please! Now you’re wondering: Is it finally time to pull those old red-and-white “Whip Inflation Now” buttons out of the junk drawer?

Wait! You don’t remember those corny “WIN” buttons from 1974? When inflation surged more than 13%? When the Ford administration solemnly declared inflation “Public Enemy Number One”? 

Inflation, mercifully dormant for nearly four decades, roared back to life in the summer of 2021 and has only grown worse since—hitting an annual rate of 7.9% in February 2022. Of course, the shocking rise in gasoline prices in early 2022 stands out as the most visible sign of the times. But, long before the Russia-Ukraine war sent pump prices skyrocketing, a combination of soaring demand and crushing supply-chain bottlenecks was fueling a huge rise in the price of everything from groceries and rent payments to airline tickets, automobiles, and raw materials. 

By early 2022, the rate of annual inflation had risen to levels not seen since 1982. As shown in FIGURE 1, prices for fuel oils, used vehicles, motor fuels, gasoline and energy commodities were leading the pack, closely followed by natural gas services, groceries, airline fares, and new cars.



One-Year Increase in Prices
Top 20 Items

Unadjusted Consumer Price Index data as of 2/28/22. The Consumer Price Index (CPI) is a measure of change in consumer prices as determined by the US Bureau of Labor Statistics. Source: US Bureau of Labor Statistics.


Inflation: The Silent Killer

The resurgence of inflation, once dismissed as a “transitory” phenomenon by Federal Reserve (Fed) officials, now has the full and undivided attention of policymakers—and for good reason.

Inflation is called the silent killer because it secretly eats away at your purchasing power for a wide range of goods and services. It makes the dollars you hold today worth even less in the future.

When severe, inflation saps the value of real wages and compels many consumers to buy goods sooner and save less. What’s more, inflation tends to become a self-fulfilling prophecy as higher prices lead to demand for higher wages. This can prompt companies to raise prices, which in turn can lead to even stronger demand for higher wages, and so on.

If you were born after 1985, your experience of inflation so far may have extended no further than watching the price of gasoline shoot past $4 per gallon. For those with longer memories, the double-digit inflation of the 1970s was no joke (WIN buttons aside). Meat prices soared, sparking a consumer revolt. Worse yet, the Organization of Petroleum Exporting Countries shocked the nation’s oil supply by quadrupling crude prices in 1973 and doubling them again in 1979. When the Fed finally decided that higher interest rates were the only appropriate cure for persistent inflation, mortgage rates hit an all-time peak of 18% in October 1981.2

It literally took a painful recession (1981–1983) to finally wring inflation from the public psyche. When citizens no longer expected their dollars to lose value every day, the vicious cycle of too much money spent chasing too few goods finally came to an end. 


The Fed Sharpens Its Focus

Today, the Fed’s policy gaze is fixed squarely on combatting inflation. In December 2021, Fed Chair Jerome Powell announced an acceleration of its previously planned tapering of bond purchases, which had been helping to support the post-COVID-19 economic recovery. Powell’s pronouncements were coupled with assertions that the Fed would soon begin gradually hiking interest rates in an effort to raise the cost of borrowing money and help tamp down rising prices.

But the eruption of war between Russia and Ukraine in late February complicated the Fed’s calculus as Western sanctions against Russia focused, in part, on curtailing US imports of Russian oil. While the US only gets about 8% of all foreign oil imports and refined products from Russia,3 the ban has put pressure on the entire global oil supply chain, causing average domestic gasoline prices to rise above $4 for the first time since 2008.3


Your Inflation Playbook

The Fed must now weigh whether its plan to hike interest rates several times in 2022 runs the risk of triggering stagflation, i.e., a slowdown in economic growth that leaves inflation unchecked. In such an environment, inflation-protected Treasuries, precious-metals commodities, and emerging-market currencies tend to provide investors with a potential inflation hedge. Yet even if economic growth stays strong, higher rates could be especially painful for growth stocks, raising costs and eating into profit margins. 

Value stocks tend to perform better in inflationary environments since companies paying high dividends are those that stand to gain the most from a strengthening economy. Savers and bond investors could also see better yields on fixed income and savings deposits.

It’s understandable if you might feel unaccustomed to thinking about rampant inflation (unless you’ve been binge-watching re-runs of “That ‘70s Show”). But like it or not, inflation is back. Now would be the good time to speak with a financial professional who can help you devise a strategy to keep pace with whatever inflation we face in the future (see FIGURE 2).



Will You Keep Pace With Inflation?
How Much $100,000 in Today's Dollars Will Need to Grow After a Decade of Inflation

Source: Hartford Funds.



Talk to your financial professional to help ensure your portfolio is prepared to withstand higher inflation.


1 AAA national-average gasoline price as of 3/18/22.

2  Valuepenguin.com, “Historical Mortgage Rates: Averages and Trends from the 1970s to 2020,” 3/6/21.

3  Wall Street Journal, “How Much Oil Does the US Import from Russia and Why Did Biden Ban It?,” 3/11/22.

Important Risks: Investing involves risk, including the possible loss of principal. • Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall.  • Foreign investments may be more volatile and less liquid than US investments and are subject to the risk of currency fluctuations and adverse political, economic and regulatory developments. These risks may be greater, and include additional risks, for investments in emerging markets.  • Investments in the commodities market and the natural-resource industry may increase liquidity risk, volatility and risk of loss if adverse developments occur. • The value of inflation-protected securities (IPS) generally fluctuates with changes in real interest rates, and the market for IPS may be less developed or liquid, and more volatile, than other securities markets. • Different investment styles may go in and out of favor, which may underperform the broader stock market. 


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