2021 Inflation Expectations

Questions? Let's get connected!

Our mission at Thrive is to take the time to learn your personal financial situation and history so that we can help you develop a personalized retirement strategy. Whether you’re just getting started or are ready to retire, our team is here for you every step of the way!


Putting Inflation Expectations in Perspective

Posted by CopyTeam


Historically, inflation has been highly correlated with unemployment levels. When more people were out of a job, inflation was lower. As more people got jobs, inflation increased. From an economic point of view, this makes sense. Jobs increase income, which increases spending, which increases demand — supplies drop and prices rise. The opposite is true when fewer people hold jobs.1


That’s one thing that makes economic policy so difficult to set. It requires a careful balance of cause and effect, keeping in mind that what’s good for some portions of the population is bad for others. During periods of rising inflation, it’s important to monitor how it might affect us personally, from buying household goods to managing a portfolio. While economists are keeping an eye on the direction and momentum of rising inflation now, you may want to consider adding inflation-protection measures to your investment portfolio at some point. Contact us if you’d like to learn more about allocations to treasury inflation-protected securities (known as TIPS), real-estate investment trusts or commodities to help hedge the effect of rising inflation.2


In April, the inflation rate grew to 4.2%, which drove speculation that the Federal Reserve might reconsider its current stance on interest rates and monetary policy. The consumer price index (CPI) rose significantly for used cars and trucks, food, housing, airline fares, recreation, motor vehicle insurance, household furnishings and operations.


Currently, the federal funds target rate (which serves as the benchmark for bank interest rates) ranges from 0 to 0.25%. Previously, the Fed indicated that it expects to maintain a near-zero interest rate through 2023. The central bank targets an average inflation rate of 2 percent throughout time, so it appears not particularly concerned with the recent spike. In recent comments, Fed chairman Jerome Powell noted that the committee was monitoring “a broad range of financial conditions,” rather than focusing on addressing just one.3


Besides, Fed officials expected inflation to increase as the U.S. economy reopened. The surge in prices is expected to be temporary, as it is simply a matter of a supply crunch after months of pent-up demand. It’s normal that prices for hotel rooms, rental cars, used vehicles, sporting events and restaurants will go back to their pre-pandemic levels. Once jobs, consumerism and inflation reach a level of normalization, the Fed will consider whether it needs to raise the target federal funds rate.4


In terms of the investment market response, CNBC’s Jim Cramer observed that people expected high inflation due to stimulus and jobs numbers. As a result, when the numbers were announced the market didn’t panic – thus far it has taken the high inflation number in stride. Cramer went on to note that raising interest rates won’t solve all the problems that occurred last year. In many cases, only time can resolve them.5


Likewise, time may resolve the current labor shortage, as restaurants and hotels struggle to find enough workers to fill open jobs. Additionally, the current strong economy could solve for the national minimum wage debate without the need to pass new legislation. For example, retailers Amazon, Costco and Target have all voluntarily increased wages to $15/hr or more to meet demand. This strategy follows the traditional economic principle of supply and demand, in which the only way to stay competitive in the labor market is to increase wages. After all, workers have to keep up with the rising costs of housing, childcare, food and transportation.


Speaking of childcare, after decades of working mothers in the labor market, it will be interesting to see if the rising economy also can address the problem of childcare. During the pandemic, more women than men left their jobs to stay home with children sidelined from schools and childcare centers. This phenomenon may continue until employers — or legislators — come up with a solution. It will be difficult for the American economy to advance while there are millions of unemployed women staying home because of trouble securing child care.


The pandemic also convinced twice the number of Baby Boomers to retire than the previous year. Raising wages and providing more childcare resources, paid parental leave and paid vacation time may be the only way to woo more people back into the labor force.6





1 Greg Depersio. Investopedia. Aug. 22, 2020. “What happens when inflation and unemployment are positively correlated?” https://www.investopedia.com/ask/answers/040715/what-happens-when-inflation-and-unemployment-are-positively-correlated.asp. Accessed June 11, 2021.
2 Greg Iacurci. CNBC. June 8, 2021. “Gold as an inflation hedge? History suggests otherwise.” https://www.cnbc.com/2021/06/08/gold-as-an-inflation-hedge-history-suggests-otherwise.html. Accessed June 11, 2021.
3 Knowledge@Wharton. June 1, 2021. “Inflation: What Lies Ahead?” https://knowledge.wharton.upenn.edu/article/inflation-what-lies-ahead/. Accessed June 12, 2021.
4 Patti Domm. CNBC. June 11, 2021. “Inflation is hotter than expected, but it looks temporary and likely won’t affect Fed policy yet.” https://www.cnbc.com/2021/06/10/inflation-hotter-than-expected-but-transitory-wont-affect-fed-policy.html. Accessed June 11, 2021.
5 Tyler Clifford. CNBC. June 10, 2021. “Jim Cramer reacts to red-hot inflation number: ‘The market took it in stride’.” https://www.cnbc.com/video/2021/06/10/jim-cramer-reacts-to-inflation-report-the-market-took-it-in-stride.html. Accessed June 11, 2021.
6 Sarah Hansen. Forbes. May 15, 2021. “Could Covid-19 Worker Shortages Create A $15 Minimum Wage—Even Without A New Law?” https://www.forbes.com/sites/sarahhansen/2021/05/15/could-covid-19-worker-shortages-create-a-15-minimum-wage-even-without-a-new-law/?sh=1ae0db234929. Accessed June 11, 2021.
Content prepared by Kara Stefan Communications.
We are an independent financial services firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives. Advisory services offered through Thrive Capital Management, LLC., an SEC Registered Investment Advisory firm. Insurance products and services offered through Thrive Financial Services, LLC. The information contained in this material is given for informational purposes only, and no statement contained herein shall constitute tax, legal or investment advice. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. You should seek advice on legal and tax questions from an independent attorney or tax advisor. Our firm is not affiliated with the U.S. government or any governmental agency. 
Please note that we are unable to accept any trade requests via email, voice message or text. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. None of the information contained on this website shall constitute an offer to sell or solicit any offer to buy a security or any insurance product. Any references to protection benefit or steady and reliable income streams on this website refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by insurance company. Annuities are not FDIC insured.
The information and opinions contained in any of the material requested from this website are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. They are given for informational purposes only and are not a solicitation to buy or sell any of the products mentioned.

Have questions? Schedule a call!

We can meet with zero obligations on your part. If you can invest one hour today for a no-obligation consultation, we can place you on the path toward owning your tomorrow.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top
Call Now Button