Consumers have to face that nasty inflation is here to stay for a while: Morning Brief

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Monday, June 6, 2022

Today’s newsletter is from Brian Sozzia general editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi is at LinkedIn.

“It’s a very challenging time right now with inflation,” US Labor Secretary Marty Walsh told Yahoo Finance Live Friday (video above).

Indeed, and the reality is that nasty inflation is here to stay at least until 2023. Sure, we can get the mild recession that some policymakers seem to want, and inflation could cool off as a result, but don’t expect prices to decline. for levels you once considered reasonable. If you want a new pair of jeans, as Levi’s CFO Harmit Singh recently told me, buy them now.

Why do these brutal inflationary forces continue? It’s simple: there are structural issues amid the post-pandemic world that are fueling the inflation beast.

Skilled workers are too few to meet post-pandemic companies’ needs, driving wages to soar. Even in a recession, skilled workers will be forced to meet the demand that is being seen. Supply chains are still stuck overseas, where the cost of labor and transportation continues to rise.

These problems will cripple semiconductor production by 2024, said Intel CEO Pat Gelsinger. Oil doesn’t grow on trees and has become a renewed political chess piece. This suggests prices above $100 a barrel (or more…) as a new normal.

Jefferies Chief Economist Aneta Markowska summed up these trends well in a new note to clients:

“The tightening in the labor market is allowing the workforce to extract concessions on wages, bonuses and benefits, causing labor costs to ‘chase’ higher prices back to consumers to preserve margins.

Meanwhile, ample cash and borrowing capacity is allowing consumers to absorb higher prices despite negative real wages, which underpins the positive feedback loop.”

So what do you do about this attack on your finances?

Stop complaining about inflation in social networks, adapt and overcome. For example, consumers can make lifestyle changes by switching to cheaper alternatives.

Do you really need Crest whitening toothpaste or will the private label brand work just as well? Conagra Brands and others have reinvented frozen foods – it tastes great and can be helpful in cost-cutting efforts. Can you do all your food shopping on a trip to Walmart or Target to save fuel? (This one-trip trend is already being pointed to by most major retailers as the driver of the increase in average basket size.)

Instead of visiting Kohl’s for a full-price swimsuit, head to Marshall’s, owned by TJ Maxx. Retail is stocked up after a bad first quarter, and I bet you can buy a really nice swimsuit for under $20 at Marshall’s instead of spending $40 at Kohl’s.

Consumers shop for meat at a Safeway grocery store in Annapolis, Maryland on May 16, 2022, as Americans brace for the summer shock as inflation continues to rise. (Photo by Jim WATSON/AFP) (Photo by JIM WATSON/AFP via Getty Images)

and before you tweet me a dose of indignation, I don’t live in an ivory tower — I’ve made a lot of lifestyle changes in recent months due to inflation. There’s no shame in my game of eating frozen food or ordering things online to pick up at the store (reduces the urge to wander around a store and buy more) or even waiting for car parts to break before replacing them (no is the smartest decision, but whatever).

As for how to adapt and overcome the long-range inflation in your stock portfolio, that’s more complicated because you can’t control the stock market. All you can do is stay focused on your long-term wealth-building goals, even if it’s painful to look at a trading account down 30% at Tesla, 20% at Amazon, and 15% at Apple.

Realize that none of these three companies are failing and the chances are that five years from now, all three will likely have higher share prices than they do today.

If you’re a more active trader, I enjoyed this dose of wisdom recently provided by Charles Schwab’s Chief Investment Strategist Liz Ann Sonders on Yahoo Finance Live:

“So you want to have a quality wrapper around the types of stocks you’re looking at. I think the factors that are doing well and I think will continue to do well — that have this kind of quality wrapper around them — would be areas like strong free cash flow yield given what we are seeing in inflation rates, cash-rich balance sheets and profitability.

Happy trading!

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