Nils Larsen is an experienced finance professional. He uses his knowledge to help consumers understand current inflation and its driving forces.
LOS ANGELES, CA / ACCESSWIRE / October 20, 2022 / As an experienced financial analyst, Nils Larsen walks consumers through the current and historic rise in inflation. He offers a brief but thorough definition of inflation, followed by an overview of the three primary drivers of price hikes. Then, he concludes with a brief commentary on consumer influence in the market and on business decisions.
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In June, the government reported an 8.6% increase in consumer prices across the board, resulting in an inflation rate faster than anything seen in the last four decades. August experienced an additional gain of 0.1%, dashing the hopes of analysts hoping for a decline. The increases are slowing but not stalling, suggesting inflation is here for the long term. Larsen aims to help consumers understand the driving forces behind the current financial trend.
Defining Inflation
Inflation is a collective rise in prices. External sources affect the entire economy. If an individual market experiences rising prices, that is not inflation. Individual shifts in markets react to supply and demand shifts and other variable changes. Inflation only occurs when all goods experience increases in weighted prices.
Economists expect some inflation every year. On average, the Federal Reserve attempts to influence an inflation rate of around 2%. Lower inflation rates incentivize spending and are healthy for the overall economy. Higher rates cause consumers to hold on to their cash, reducing spending and increasing savings, especially cash assets.
Understanding Current Inflation
Nils Larsen - financial advisor and portfolio manager - explains that current inflation stems from several factors: demand, supply, and service-sector strain. Consumers have an excess in pandemic-era savings. The money stems from quarantines and government aid. As restrictions lessened, people returned to the office, secured better-paying positions, and enjoyed life. Now, households are experiencing some financial freedom by spending on luxury items, everything from vacations to backyard grills.
Usually, strong consumer demand is healthy and welcomed, but post-pandemic businesses do not have the supply to support it. Factory shutdowns, reduced production, and shipping backlogs fueled parts and product shortages. Recent lockdowns in China also put increased strain on the recovery of the logistics sector. Reduced supplies mean high-demand goods cost more.
Finally, after pandemic lockdowns and quarantines, consumers are shifting purchasing priorities. The economy experienced a notable shift from purchasing tangible goods to experiences. The change to experiences is causing service-sector pressure, leading to rising prices.
Reviewing Consumer Buying Patterns and Inflation Influence
Many corporations and industry leaders are experiencing record profits. While some price increases are necessary to cover rising labor and supply costs, many companies push up prices more than needed.
According to Larsen, companies can afford to increase prices because consumers will pay. With current demand, businesses can alter prices without worrying too much about losing customers. However, pricing power never lasts. Some organizations, such as Target, have already signaled upcoming price drops to motivate consumers and clear out inventory.
The current inflation pattern results from a combination of factors. The ongoing fiscal trend is uncommon, with the last significant and fast-paced rise happening over 40 years ago. Economists speculate the trend is slowing, but it is not over. For consumers with less disposable income, inflation is troubling and will take its toll. Experts in the field, including Larsen, encourage all consumers to adjust their spending and investment habits to best suit current market demands and personal needs.
About Nils Larsen
Larsen works for a top investment firm in Los Angeles, California, helping clients assess their risk tolerance and set financial goals. As a recipient of the Chartered Financial Analyst designation - the highest distinction in the investment management profession - he develops and manages investment strategies involving stocks, bonds, exchange-traded funds, mutual funds, and other investment vehicles. Besides being a well-respected professional, He also holds a position as an adjunct finance professor at a local community college.
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