Whew. That’s a lot of reading.

Let me save you time and confusion. Here are short answers to the five most common questions people ask about inflation.

1. What is inflation? 

In simple terms, inflation is when our money loses purchasing power. It’s when the price of products and services goes up.

For example, a gallon of gas costs around $4 today; it was $2.85 a year ago. Translation: Filling your tank is painful!

Economists talk about the “inflation rate.” They’re referring to the average increase in the cost of various consumer goods. For the last 20 years, we’ve had an inflation rate of about 3%. Lately, inflation has risen to around 7%.

We’re seeing rising prices on most items—houses, cars, food, electricity, lumber. However, the prices of those assorted goods don’t increase at the same rates. To understand why, we have to ask . . .

2. What causes inflation? 

Perhaps an example will help. Three years ago, car dealers had plenty of inventory. You could find great deals on both new and used vehicles. Then the pandemic shut factories and interrupted supply chains. A shortage of parts and computer chips meant new cars were scarce. This sparked a huge demand for a limited supply of used cars. As a result, prices surged on all cars.

That’s what causes inflation: when more buyers are chasing after fewer goods.

3. Can we see inflation coming? 

Multiple money “experts” claim they predicted this most recent bout of rising prices. “We can’t have so much government spending and not have inflation!”

The problem is these experts said the same thing about the government bailouts during the dot.com bubble of 2000-2002…and during the government stimulus spending in the housing crisis of 2008. 

But guess what? There wasn’t much inflation either of those times. Now there is. Have we reached some tipping point?

I’m not a big fan of government spending. But I am a fan of facing the truth that the causes of inflation are extremely complex.

I also know the explanations for inflation are easier to identify in hindsight than they are ahead of time. That prediction stuff is tricky. 

4. Why should we care? 

The obvious concern for all of us is higher sticker prices on cars, groceries, electricity, and golf balls. Nobody likes that.

On the plus side, inflation generally has a positive impact on the value of your home. Many workers also see bigger paychecks due to cost-of-living increases. And higher interest rates (keep reading!) may also increase the long-term value of your investments. 

5. What can I do? 

Economist John Mauldin said, “The old line is that the cure for high prices is high prices. When prices rise, businesses tend to respond by producing more. If the price of something gets too high, then people buy less, which then leads to too much supply, which lowers prices. Rinse and repeat.”

The Federal Reserve has promised to tap the breaks on inflation by gradually raising interest rates over the next year. That’s their contribution to the “high prices” cure of which Mauldin speaks.

How can you protect yourself? Before you try to beat inflation by buying “inflation hedges” like gold or other commodities, get some advice. It’s possible to lose a lot of money fast.

A better solution is to control what you can control by making a solid, wise financial plan for your future. Delaying that planning process only makes it more expensive (another higher price) and less effective. 

Your best defense against inflation that may linger into the foreseeable future? A comprehensive plan you put into action today.

To help you think through such issues, I’ve created a comprehensive checklist of pre-retirement questions for people who are 60-something. It’s free if you’d like a copy. Just email me at bmoore@argentadvisors.com, and I’ll send it to you right away.

Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information here.

And not a moment too soon.

The COVID-19 virus has delivered a shock to the world economy the likes of which has not been seen in a long, long time. Businesses are shut down and individuals are staying at home. A national economy that was humming on Valentine’s Day did a face plant by April Fool’s Day.

In response, Congress just passed the Coronavirus Aid, Relief and Economic Security Act (or C.A.R.E.S. Act), which will provide about $2 trillion in economic relief. That’s about 10% of the entire gross domestic product of the US, a staggering number. 

Here are a few high points relevant to individuals and small business owners.

Tax returns / payments. Prior to the passage of the CARES Act, the US Treasury announced that both income tax returns and payments due April 15, 2020, would automatically be extended to July 15, 2020. No extension forms need to be filed.

Money for individuals. Many Americans will receive direct payments of $1,200, or $2,400 for joint filers, plus $500 for each qualifying child. Generally speaking, these payments will come to individuals making $75,000 or less (or combined if filing jointly). If you make more than $75,000, the amount will be reduced, ultimately to $0 if you make more than $99,000 per tax payor. The payments will not be taxed. There’s no need to apply for this money.

Money if you are unemployed. Unemployment benefits are increased by up to $600 per week, on top of what the state already pays. Part-timers and the self-employed may also qualify. You can file for unemployment at http://www.louisianaworks.net/hire. 

Retirement account changes. The 10% early withdrawal penalty is waived for “coronavirus-related distributions” taken in 2020 up to $100,000 per individual across all company-sponsored plans and IRAs.

You qualify for a “coronavirus related distribution” if you, your spouse, or dependent have a diagnosis of COVID-19; or you been financially impacted by related issues.

Any distributions you take out are still taxable, but you get to spread payment of that tax evenly over the next three years. 

They’re also giving you three years to roll the funds back into the plan or IRA.

Student loans. All payments on student loans have been suspended until September 30, 2020. Interest will not accrue during this period. 

Money for small business. The federal government is providing financial relief through multiple programs. The first is…

Paycheck Protection Program (PPP). Small businesses (500 or less employees) and non-profits may apply for a loan equal to eight weeks of payroll costs. That includes payroll, benefits, rent, utilities, and interest on mortgages. If the employer keeps everyone on the payroll (more or less), the loan will be forgiven. It will be free money, also tax-free. Business owners should apply through their bank or other lenders eligible to make SBA loans. The second program is…

Economic Injury Disaster Loan (EIDL). EIDLs are lower interest loans of up to $2 million designed to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses. Principal and interest payment on these loans may be deferred for up to 4 years depending on your circumstances. These loans may be amortized for up to 30 years. 

We’ve not seen government intervention on this scale since World War II. 

If you are working and your income has not changed, all this may seem excessive. But if through no fault of your own, you’ve been quarantined from work (not to say normal social contacts), this lifeline may be your only hope of economic survival. 

Let’s all watch out for one another, continue being safe, and focus on things for which we can be grateful. 

Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information at http://www.ruston.argentadvisors.com/important-disclosure-information