During the most recent meeting of the Editorial Advisory and Securities Review Committee, inflation came to mind. Recent news indicated that inflation isn’t top of mind for many policymakers and the general public, but committee members remained concerned that prices could spiral upward.
As Walter Kirchberger noted in a Feb. 27 blog post at the Sigma Investment Counselors website, there could be a divergence in how the government calculates inflation and how consumers would calculate inflation based on what they actually spend their money on. Walter, a committee member, points out that according to the latest Bureau of Labor Statistics report, consumer prices in January increased 2.9 percent over the past 12 months.
Although this isn’t a historically high rate, there seems to be a difference between the government rate and what Walter refers to as the “PB&J index.” “At approximately the same time, J.M. Smucker Co. announced that average prices on items jumped 16 percent from the prior year, while Jif peanut butter prices surged 30 percent,” he wrote. “Also note that grain prices continue at high levels.”
And unless your main transportation is a bicycle, you’ve certainly noticed more pain at the pump. Don’t be lulled into a false sense of security regarding inflation. Although we haven’t seen tremendously high rates, the environment for an upward spiral will likely exist for some time.
It’s important to understand how inflation will affect your investments. The committee points out that although inflation hurts just about all investments, the impact on stocks can be less than for bonds and other vehicles. In fact, companies that derive a lot of revenue from licensing and royalties can do well. As prices increase, these companies might generate more revenue without suffering higher costs.
Companies listed are for educational purposes only. No investment recommendations are intended.