Inflation Continues to Soar to Record Highs

Inflation is at its highest rate in over 40 years.

• The newest consumer price index came out today. Inflation is up 0.6% at 7.5%, the highest it’s been since 1982.

• The Fed is expected to react quicker than expected to the drastic increase in inflation rates.

• Demand from consumers post pandemic has pushed inflation rates to record highs.

What Does This Mean for the Economy?

High inflation rates are inevitable especially after the economy was living in a low interest rate environment for such a long period of time. The consumer price index is at the highest rate its been at in 40 years at 7.5%. The consumer price index measures what the average consumer pays goods and services.

Reasons for high inflation rates include supply chain issues and increases in production costs. The record high rates have had their impact on household necessities such as groceries and electricity. Grocery prices were up 7% last month which is the largest increase in 40 years.

To combat the record high inflation rates, the Fed is expected to raise interest rates. The expected increase in interest rates will have an impact on overall market activity which will impact many sectors within the stock market. Companies in sectors like the information technology and consumer discretionary sector will be heavily impacted as there will be less consumer spending.

Consumers can no longer afford many of the products and services that these companies are offering. These sectors tend to thrive when the economy is doing well and there is more consumer spending so these sectors to stay away from in the upcoming months.

How Should Investors Act?

Investors should move towards safer sectors such as the consumer staples & energy sectors. Consumer staples is on example of a sector that will thrive when consumer spending is decreasing.

Companies in this sector have the opportunity to take advantage of the current environment as their products are a necessity regardless of the economic environment.