Inflation Is Coming for Your Wealth. Here's What Investors Can Do About It
Inflation is back on investors’ minds lately, and some may be wondering how to position their portfolios to confront this potential new scourge. It’s been many years since skyrocketing prices have been a real concern, but there are a number of inflationary pressures in play right now, both near-term and long-term, that investors should have on their radars.
Policymakers tell us that there’s nothing to worry about. Earlier this week, Federal Reserve Chair Jerome Powell tried to downplay inflation concerns, testifying before Congress that “prices remain particularly soft” even for those sectors that were hardest hit by the pandemic.
Powell’s not wrong—if we’re measuring inflation by the government’s preferred gauge, the consumer price index (CPI). According to the CPI, prices rose only 1.4% year-over-year in January, well below the Fed’s target of 2%. For the past 10 years, the monthly reading has averaged a tepid 1.7%.
But others are starting to question the accuracy of the CPI. I’ve written about this topic before. I think most Americans could list a number of real-life examples of prices for everyday things climbing much faster than 2% over the past year.
Near-Term Inflation: Food Prices and Shipping Costs
Take food prices. According to the United Nation’s FAO Food Price Index, a basket of food commodities rose for the eighth straight month in January, registering its highest monthly average since July 2014. Prices for vegetable oils in particular have surged to multiyear highs, due in large part to excessive rainfall in Indonesia and Malaysia that has impacted palm oil production.