What’s Going on With Inflation?

Lauren Smith |
What is happening with inflation and supply in our economy right now?

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I'm getting a lot of clients asking me about inflation. Let me explain what’s happening with inflation and how the Federal Reserve is couching this inflationary environment. The Fed is saying that this inflation is transitory. The supply chain disruptions from the pandemic are causing an increase in prices. The problem with calling it transitory is that the Fed has dumped massive amounts of stimulus into our economy. Our M2 money supply has increased by 30%.

Let's say our economy consists of $10 and 10 apples, and each apple costs $1. If you increase the money supply by 30%, you now have $13 but still 10 apples. Those 10 apples now cost $1.30. If we reduce the number of apples by five to simulate a supply chain disruption, then each apple costs $2.60.

"Inflation is here to stay for a while."

When the supply chain disruption gets corrected, we'll go back to having ten apples but we’ll still have $13. The supply chain disruption will eventually work itself out, but the stimulus money put in the economy is something entirely different. They're not going to take the money back, which means inflation is here to stay for a while.

If you have any questions, please feel free to reach out to me via phone or email. I’d love to answer any questions you have.

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