The “New York Times”, “Washington Post”, “Wall Street Journal”, and other publications have all recently published articles about inflation. In those articles, questions were raised about whether people should be concerned about inflation when we eventually get through this COVID-19 pandemic. The theory that inflation is inevitable is based on a set of assumptions that may or may not happen. Let’s take a look at what some economists think could be a perfect storm for rising prices of goods and services.

The COVID-19 pandemic that has shocked the global economy ends when a vaccine becomes readily available. Most health experts believe that will happen in 2021, although there are different opinions about the timing and availability of a reliable vaccine. When that does happen, many economists believe consumers will rush out to stores and restaurants to spend money and enjoy life after living through the pandemic and saving money rather than spending it. However, because of all the businesses that were shut down by the pandemic, the supply channel won’t be up-to-speed and the demand for goods and services will outweigh the supply, thus causing prices to increase significantly. Some economists also believe there are other factors that could drive inflation. They point to the growing federal deficit, including the $2 trillion dollar CARES Act relief package. Most analysts feel it was the right thing to do, but it has added to an already large deficit. They also point to the Federal Reserve’s policy of maintaining near zero interest rates, pushing more money into the financial system.

Now, it must also be said that many economists who were quoted in those articles do not believe significant inflation is a big concern, even when the pandemic is behind us and economic activity returns to normal. There were similar concerns about inflation after the Great Recession that began in 2007, but it didn’t happen. Many believe the Fed has learned through experience how to keep it in check by manipulating interest rates to counter rising inflation rates.

“I think the Fed has a lot of experience handling different situations,” said Hilltop Wealth Solutions President/CEO Erik Brenner. “I think they’ll make the right moves if inflation starts to get out of control, but I don’t see that happening.”

But if you are concerned about inflation becoming a problem, or if you just like to hedge, what are some steps you can take to protect yourself financially?

“If people have concerns about inflation and want to make changes, we have to have a conversation about their goals and their risk tolerance to make sure we make the correct adjustments to their portfolios,” said Brenner.

Brenner always stresses a holistic approach in which there are conversations before any decisions are made about adjustments to portfolios, financial plans, and retirement plans. Hilltop Wealth Solutions is a fiduciary advisory company. They are legally obligated to act only in the best interest of their clients and they only do well if their clients do well. Brenner says he has not had any clients express concern about inflation.

Matt Aurenz, the director of wealth management at Hilltop, says he hasn’t had any clients express concern about inflation either. He says there are some basic strategies that could be considered if someone was really worried about it.

“We could reposition some of their fixed-income to include Treasury Inflation Protected Securities (TIPS),” said Aurenz. “Additionally, overweighting equities, commodities, or gold could also help offset inflationary risks within an investment portfolio. “

Treasury Inflation-Protected Securities provide protection against inflation. The principal increases with inflation and decreases with deflation. When the TIPS reach maturity, the payment is either the adjusted for inflation principal or the original amount, whichever is more.

Fixed income is an investment approach that aims to preserve capital and generate income. It involves investments in government and corporate bonds, CDs, and conservative market funds. It’s a strategy that can provide a steady stream of income with much less risk than investments in the stock market. That steady income could provide the extra money people would need if inflation jumped significantly.

Extra income during a period of high inflation can help anyone, but it can be more important to retirees, who mainly live on fixed income and are most vulnerable to rising healthcare costs. Healthcare costs typically increase even more than the annual inflation rate. Healthcare inflation in 2020 will be more than four percent, while the overall inflation rate the past year has been 1.3 percent. According to the Centers for Medicare and Medicaid Services retired Americans will spend three times as much money on healthcare than adults who are still working.

“Healthcare is the biggest issue for seniors when it comes to inflation, but they avoid the extra costs of durable goods because they’ve already purchased them,” said Brenner. “The impact of inflation depends on many different things, including geography. Some areas of this country are much more expensive to live in than others.”

Brenner says potential inflation is just another issue a good financial advisor will help you factor in when you develop a financial strategy or retirement plan.

When asked about the main cause of inflation, famous economist Milton Friedman said it is “always and everywhere a monetary phenomenon.” But these days the supply of money doesn’t always equate to inflation. Many economists believe it’s a factor, but an increase in the supply by itself no longer causes inflation. They also believe that the extra money put into the system has to be spent and circulated, but much of the money printed by the government for the CARES Act is sitting in savings accounts right now because people are unsure of the future. They’re holding on to the money until they know the COVID-19 pandemic is over. When and if that happens, some economists think inflation could be the result.

“I’m not worried about inflation. My biggest concern is the disconnect between the market and reality,” said Aurenz. “People are ignoring the underlying issues.” Aurenz believes the growing federal deficit is the biggest threat to the economy and he says future generations will pay the price. He’s concerned that the market’s success is covering up our economic pimples.

Inflation was ticking up and reached 2.5 percent in January just before the pandemic began to cripple economies all over the world. In May it bottomed out at o.1 percent, the lowest single month rate in five years. It increased to 1.3 percent in August. The Fed says it would like to keep inflation near 2 percent, a rate that is generally considered an indication of a healthy economy. This country hasn’t seen double digit inflation rates that we had in the late 70s and early 80s for 40 years now. Interest rates in 1980 hit 18 percent. It seems unlikely we will ever see those type of rates again, but there are some economists who don’t like what they’re seeing in our economy and they’ve expressed their concerns. Many others, however, think concerns about inflation are very inflated.