What People Think About Inflation with Mark Biller

FaithFi: Faith & Finance | Jul 16, 2024

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Show Notes

Everyone knows what inflation means, right? You’d be surprised by how fuzzy some people think about inflation.

Is inflation a rise in prices, or simply high prices? Or does it mean something else entirely? The results of a recent poll may surprise you, but we’ve got Mark Biller with us today to explain it.

Mark Biller is Executive Editor and Senior Portfolio Manager at Sound Mind Investing, an underwriter of Faith & Finance.

What is Inflation? A Common Misunderstanding

A recent survey revealed a significant misunderstanding among the general public about what inflation actually means. While 86% of respondents expressed concern about inflation, their definitions varied widely. Some believed it meant a rise in prices, others thought it referred to high prices, and there was confusion about the time periods involved—fewer than half correctly defined inflation as a rise in the cost of goods and services.

Economists vs. Everyday Experience

There needs to be more connection between how economists talk about inflation and how ordinary people experience it. Economists focus on the rate of change in prices, which peaked at 9% in June 2022 and has since declined to 3-3.5%.

However, this doesn’t mean prices are decreasing; they are simply rising at a slower rate. On the other hand, people experience inflation cumulatively. Since prices started soaring after COVID-19, the cumulative cost of inflation is between 22% and 25%.

The Reality of Persistent High Prices

Unfortunately, once prices rise, they seldom go back down. The concept of "transitory" inflation was misleading because it suggested that prices might return to previous levels, which they haven't. The cumulative impact of inflation since 2020 means that everything we buy now costs significantly more, and this higher cost is here to stay.

Future of Inflation and Its Implications

Looking ahead, the battle against inflation continues. The Federal Reserve aims for a 2% inflation target, but the current rate above 3% indicates that more efforts are needed. The longer high inflation persists, the more it influences people's expectations and behaviors, which can lead to demands for higher wages and further price increases.

Investing in an Inflationary Environment

Higher inflation has several implications for investors. Interest rates have spiked, hurting bond returns but benefiting savers with higher cash and other safe holdings yields. Real assets like gold, commodities, and energy stocks have performed well during this period. Sound Mind Investing has emphasized these assets while slightly reducing bond investments to mitigate the effects of higher inflation and interest rates.

While economists and financial experts view inflation through a specific lens, everyday experiences paint a different picture. Understanding these differences can help us make better financial decisions navigating this inflationary environment.

On Today’s Program, Rob Answers Listener Questions:

I’m seeking a good church management software program for our small church of less than 100 members. I want it to track our members' giving records and coordinate events.
What do I do about the loan I took from my previous employer's 401k? I had borrowed around $9,000 to help buy a car for my daughter when she went to college. I am no longer with that employer, but they will allow me to repay the loan even though I've left. I'm currently paying $2,000 per month towards it. Should I continue repaying the loan or just stop paying it back? I also wanted to know if I should pay it off in one lump sum or continue monthly payments. Lastly, I also wanted to see if I should keep the 401k funds with my former employer or move them elsewhere.
Would it be wise for my husband and I to co-sign on student loans for our son starting college this fall? Since he has no credit history, I wondered if that would factor into getting a better loan interest rate. Where would you recommend looking for loans that have the best interest rates?

Resources Mentioned:

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