The material presented here is for educational purposes only and is not intended to be used as financial, investment, or legal advice.
How to Navigate Rising Inflation in 2022
By Jack Biggs, CFA, Desert Financial Credit Union SVP and CFO
The U.S. is grappling with a perfect storm of economic factors, most of which stem from the COVID-19 pandemic. The Federal Reserve System has flooded the market with cash since the end of 2019 to help offset the detrimental effects of a global virus. Then, with the slowdown of global production, there was an inevitable decrease in supply. What happens with a surplus of cash plus a low supply? Inflation. Add into the mix an overseas war involving a major global oil producer, and now we have ballooning gas prices.
Though we long for the days of strong markets and pain-free trips to the gas station, not all is doom and gloom for consumers. Unemployment is holding fast at a historically low rate, while job openings remain at all-time highs (over 11 million). That means workers are currently in a unique position to benefit from such a tight labor market.
That brings us to today.
Read on to learn more about how to take advantage of the current job market, avoid fear-based financial decisions and stretch your cash during a time of high inflation.
Leverage the Strong Labor Market
Remember that I mentioned the low unemployment rate? According to a recent report by the U.S. Department of Labor,1 unemployment is incredibly low at 3.6 percent, while job openings are markedly high. CNBC reported2 that as of January 2022, there were “nearly two open roles for every available worker.” This means consumers are in a unique position to leverage better work opportunities.
Consider your current job and whether it’s possible to find one that better suits your life goals. There may be an opportunity to negotiate for higher pay, better hours, remote work options or pursue a higher-level position. As precarious as the economy currently is, the current labor market presents a generational opportunity to enhance your employment situation.
Scrutinize Your Investments – and the Advice of Others
First and foremost, be wary of anyone who offers a one-size-fits-all approach to investing during this time, especially if they recommend selling all equities. Maintaining a diverse portfolio, generally, will do more to insulate you from financial damage.
Historically, when inflation is on the rise, the safest harbor for a consumer to invest their money is in real assets, like real estate or precious metals, and that is no different today. However, the real estate market is hotter than ever with growing interest rates, making it difficult for the average buyer to invest.
Series I savings bonds, or I Bonds, have cropped up recently as an asset of interest among all ranks of investors, primarily because their current earned rate of interest is markedly high. At 9.62%, I Bonds are one of the highest-earning low-risk products available right now. I Bonds are issued by the U.S. Department of Treasury. Note that there are stipulations including a $10,000 per-calendar-year limit, one year waiting period before cash out and a three-month loss of interest if cashed out before five years.
Put Off Major Purchases – for Now
It's no secret that the cost of goods is rising. Everything costs more than it did prior to the COVID-19 pandemic, and the war in eastern Europe caused massive shortages in the supply chain. CNBC reported3 used cars were selling 42 percent higher at the end of 2021 compared to the same time in 2019. This has contributed to “a production slowdown caused by the pandemic, coupled with pent-up consumer demand and a global microchip shortage.” However, cars.com reports4 that used car prices will begin to level off toward the end of 2022 as new-car inventories stabilize. If you can, wait to make major purchases until inflation has slowed so that the supply chain has time to catch up and prices begin to level off.
Carefully Budget Any Travel Plans
Prices at the pump have skyrocketed, but so has the price of jet fuel, which means much higher airfare during a time when people are itching to get away after two years of staying put. Ticket prices have risen 40 percent since the beginning of the year, as reported by The New York Times.5 Hotel and rental car costs have increased as well in response to the high demand for travel. The best option for your savings account is to hold off on travel plans until oil prices decrease. However, if the trip can’t wait, spend the extra time to search for cheaper flights and accommodations.
The global economy is in flux, to say the least. Inflation and interest rates are rising, the stock market is incredibly volatile and conflicts overseas continue to increase gas prices. Uncertainty during tumultuous times like these can be scary and cause panic among consumers. However, letting fear drive major financial decisions often leads to more trouble. Instead, remain vigilant, and consider the advice above when navigating economic turbulence.
About Jack Biggs, CFA
Jack Biggs, CFA is the senior vice president and chief financial officer with Desert Financial Credit Union in Phoenix, Arizona. During his 25-year-long career, Biggs has become an expert in financial risk, investments and financial modeling. Going on more than eight years with Desert Financial, Biggs lends his expertise by ensuring the credit union maintains financial stability as it fulfills its mission of Sharing Success with its stakeholders (members, employees and the communities they serve).
About Desert Financial Credit Union
Celebrating more than 80 years in Arizona, Desert Financial is the state's most trusted local credit union with over $8 billion in assets, 400,000+ members and 47 branches. Membership eligibility is open across most of Arizona with contactless solutions via eBranch, making it easy to click, call or come in. As a not-for-profit cooperative, Desert Financial takes pride in sharing success. In 2021, members received $14 million in dividends via the Member Giveback Bonus, and Desert Financial gave back over $3.8 million through scholarships, community partnerships and Random Acts of Kindness to our members, community and team.