Issue #88: The pandemic certainly inflated my waistline. Is the dollar next?

April 7, 2021 // ISSUE #88

Hi y’all —

I admit I’m prone to inflation.

When I’m talking to my dentist, I inflate how often I floss. When my editor asks how I’m doing on a story, I inflate my word count. When I’m at a restaurant, I inflate when telling the waiter how much Parmesan I want grated on top of my pasta. (“Give me a ton of cheese, please. Like, a small mountain’s worth.”)

Over the past year in quarantine, my waistline has inflated, and so has the number of hours I spend watching trashy TV. Even my drivers license lists an inflated height — as much as I’d like to be 5’4, that’s probably only accurate if you round up generously.

There’s a lot of inflation happening in my life on a regular basis, which is why the recent headlines about price inflation have me worried. I don’t know how much more inflation I can handle.

What’s going on with inflation right now, and how will it affect me?

The basic definition of inflation is a general increase in prices across the board, said Scott Baier, chair of the John E. Walker department of economics at Clemson University. It occurs when there are too many dollars chasing too few goods.

Imagine if a helicopter suddenly dropped $5,000 on every person in the nation. People would want to use the cash to buy stuff, but there wouldn’t automatically be more stuff available. Demand would outpace supply, and prices would rise.

Ann Owen, an economics professor at Hamilton College, told me inflation is a hot topic right now because of — what else? — the pandemic. For the past year or so, because the country has been locked down, most people haven’t been able to spend money like normal. On top of that, due to the widespread job loss, many haven’t wanted to.

But we seem to be approaching a turning point. States like Florida and Texas are open for business with no stay-at-home orders. Some 167 million vaccines have been administered; people are becoming less afraid. And after an interminable winter, summer is coming.

“The idea is that people have been stuck in their houses for a year, and when they finally get permission to leave, they’re going to go out and spend a lot of money,” Owen says. “As demand goes up, so does the price.”

We know that Americans have a lot of cash on hand, in part because of the three rounds of stimulus checks approved by Congress. But the extent to which inflation will pick up, and how fast it happens, is still up in the air, said Ed Knotek, senior vice president and research economist at the Federal Reserve Bank of Cleveland.

The Fed tries to keep inflation in check by adjusting the federal funds rate, or the rate at which banks lend each other money. It generally likes to see inflation at 2%, which it claims on its website is consistent with “maximum employment and price stability,” allowing people to “make sound decisions regarding saving, borrowing and investment.”

But back in August, Chairman Jerome Powell announced a “robust updating” of the 2% standard. He said the Fed is targeting 2% over the long run, meaning it’ll let inflation rise moderately above the normal goal as long as it averages out. Last week, he elaborated on the pent-up pandemic demand problem, saying that he predicts “the effect on inflation will be neither particularly large nor persistent.”

Unfortunately, we don’t really have any sort of precedent to know for sure how this will play out. People keep saying how unique the ongoing coronavirus financial/health crisis is, and it’s true. Knotek said the dynamics of the economy are different now than they were in previous recessions. That’s only increasing the uncertainty.

If everything's uncertain, what does this all actually mean? Is milk going to cost $100 in a month?? I don’t even like milk that much, but do I need to stockpile milk while I can still afford it???

No. Owen said to chill out.

“The sky is not falling,” she adds.

Higher prices are possible, but it’s important to note that all prices won’t jump at the same time. Some products may become more expensive, while some may become less expensive, Knotek said. Plus, the potential increases are pretty small in the grand scheme of things.

Back in 1974, the U.S. saw inflation (as measured by the consumer price index) rise 12.2%. In contrast, predictions now hover around 2.5%.

“We are talking about a percentage-point swing in things. We’re not talking about a massive jump in inflation this year,” Knotek says.

From a savings point of view, Blue Ocean Global Wealth CEO Marguerita Cheng said she understands why people may be worried or even displeased by the inflation situation. Because the Fed has kept interest rates low, “if you’re trying to be a saver, you’re not too happy,” she adds.

Cheng, also a CFP Board ambassador, said I should still have a relatively liquid emergency fund I can access in the short term. For the long term, stocks are a good hedge against inflation, especially for young people like me with decades to go before retirement.

“Over time, the growth rate does outpace inflation,” she says

THE BOTTOM LINE

(but please don't tell me you scrolled past all of my hard work)

People are buzzing about inflation because the economy is opening back up, and there’s some concern that pent-up demand could increase prices. (There’s also some meta concern that expectation of inflation could cause inflation, but I’m not going to get into that here.)

Anyway, I don’t need to panic about it.

“Really high inflation should not be on the top 10 list of things to worry about for young adults,” Owen says.

via GIPHY

RECEIPT OF THE WEEK

via Instagram

Eagle-eyed viewers of a recent House hearing on misinformation saw that Twitter CEO Jack Dorsey has a weird device on his windowsill. Investigation revealed it’s a $399 (!) clock that shows the price of Bitcoin at any given time, which is the most tech bro thing I’ve ever heard. The second-most tech bro thing I've ever heard is selling a multimillion-dollar NFT of your own tweet, which he also did. @jack’s gonna @jack.

INTERNET GOLD

five things I'm loving online right now

1	“The giant, prehistoric lizard known as Godzilla reemerged on Thursday, presenting another challenge for President Biden as he works to shepherd his massive infrastructure package through Congress.”
2	Check out this cool Spotify playlist of authors like Sylvia Plath, Robert Frost, Langston Hughes, Tennessee Williams, Dorothy Parker and e.e. cummings reading their work.
3	The monks at the Cîteaux Abbey in France just solved a colossal cheese problem using the power of the internet. The monastery needed to get rid of 3 tons of unsold artisanal cheese that was lying around, so it listed the 4,000 extra wheels online and called it “OPÉRATION FROMAGE.” The cheese sold out within 24 hours. I didn’t personally order any holy cheese, but I bet it tastes divine.
4	The new Julia Michaels song “All Your Exes” is a certified banger.
5	Product rec: If you see Cretors caramel popcorn in your grocery store, run, don’t walk, to buy it. As a popcorn connoisseur — cornoisseur? — I can confidently say it’s the best caramel corn on the market right now. Seriously, I can’t stop eating it. (This isn’t an #ad, but I WISH IT WERE. Cretors, have your people call my people.)

401(K)9 CONTRIBUTION

send me cute pictures of your pets, please

via Denise Rentz

Meet Maxie, a 15-year-old pup who enjoys looking majestic on rocks in Colorado and driving up demand for treats, causing inplaytion.

See you next week.

Julia

P.S. Are you stressed about inflation? Who’s your favorite old-school author? What would you do if Godzilla came to your town? Dolla Scholla holla at your girl at julia.glum@money.com or @SuperJulia.

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Issue #88: The pandemic certainly inflated my waistline. Is the dollar next?

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