ST PAUL, Minn. — Let's kick it off with some basics.
First of all, inflation is normal. Every year the price we pay for, well everything, tends to go up — some things more than others — but on average, across all sectors, it's about 2%.
So, when April's inflation numbers came back at 4.2%, well, it shook a lot of people. But hold on, let's give this a little perspective.
The numbers reflect April of 2021, versus April of 2020.
"That's when the shutdowns were basically in full force, lots of uncertainty so prices were actually falling at this time this year," said St. Thomas Professor of Economics, Adam Check. "So if you look back to 2019 and compare kind of the trajectory that we were on before COVID and where we are right now, it's about 2% per year since April of 2019."
Now, mind you, the cost of some things right now are way up. You've heard about lumber and steel and used cars, and there's reason for that. Production slow downs during the pandemic had already created a supply shortage. Combine that with new supply chain issues — think Suez Canal — and increased demand because of things like vaccines and those stimulus checks, and you got yourself a dandy doodle of an economic situation.
"The U.S. government response to COVID has been one of the biggest in the world in terms of how much money they've given tax payers and consumers, so obviously there are people suffering, unemployed, but the overall average consumer has a lot of built up savings," Check said. "They're getting vaccinated, they're ready to go spend that money."
The big question, though, is will inflation flatten when supply gets back up to demand? Check, says yes.
"Over the next nine months or one year, if inflation numbers are still 4% at this time next year, that would be pretty surprising, and I think policy makers, people at the federal reserve, might start taking action," he said.
And that is where people start to panic and things like the stock market start to stumble. The mere thought of the fed raising interest rates sent stock prices into a tiny tumble recently.
Justin Halverson with Great Waters Financial says slow your roll.
"Contrary to what logic suggests, the markets are near all-time highs," said Halverson. "Despite having come through a global pandemic, an economic shutdown, social and political unrest like we've never seen before, the markets are at all-time highs."
The Federal Reserve is likely to take a wait and see approach, and let things play out on their own. And, quite frankly, that is the best advice for all of us, as consumers and investors.
"The best you can do to look beyond the headlines and have a plan that's right for you, for your specific dreams, goals and desires, for your future as well as who you are as an investor, that's the best thing you can do right now," Halverson said.