Everyone is talking about prices again.
My mom. My wife. Me. People at the diner. People at the grocery store. Friends who own businesses. Clients trying to decide whether to move, renovate, invest, or simply wait.
None of this is economic data. Anecdotally, though, it sure feels like inflation is everywhere again.
And some of that feeling is showing up in the data. Consumer prices rose 3.4% over the past year through August. Energy prices were up more than 16%, including a 27% increase in gasoline, while producer prices—the prices businesses encounter before many goods reach consumers—were up 5.4%.
You see it most clearly at the gas pump. But gasoline for your car is only the obvious part. Diesel prices may matter even more. Diesel fuels the trucks, tractors, construction equipment, and delivery networks that move nearly every physical product we buy.
You may never see the diesel bill required to grow, manufacture, refrigerate, and deliver your groceries. But eventually, somebody has to pay it.
Usually, that somebody is you.
Inflation Changes Decisions
Inflation is not simply about paying more for the same gallon of milk or tank of gas. It changes behavior.
Maybe you go out to dinner one less time this month.
Maybe you tell your teenager to do a little less cruising around because filling the car suddenly costs a lot more.
Maybe you postpone the addition you were considering.
Maybe you decide not to buy the beach house because the financing no longer makes sense.
Maybe the fixer-upper looked like an opportunity a year ago, but the purchase price, mortgage rate, materials, and labor now make the total cost too difficult to justify.
Could the house cost more next year? Sure. Could financing remain expensive? Absolutely. But something potentially becoming more expensive later does not automatically make it affordable or attractive today.
That postponed renovation is one less project for a builder. The beach house that does not sell affects the real estate agent, mortgage lender, contractor, furniture store, and everyone else connected to that transaction.
This is one way inflation moves through an economy. It raises prices, changes decisions, squeezes businesses, and can eventually slow activity.
The Squeeze on Businesses
Consumers can see the higher price on a menu or store shelf. What we do not always see is what happens behind the scenes.
Talk to almost any small business owner and you will hear a similar story. Fuel costs more. Supplies cost more. Insurance costs more. Labor costs more. Financing costs more.
Some businesses can raise prices. Some cannot. Many are afraid that another increase will drive customers away.
When a company cannot pass along its rising costs, inflation may not immediately appear in the price paid by the customer. Instead, it appears in the company’s shrinking profit margin.
A recent CNBC article about the pressures facing American companies described the combined burden of tariffs, fuel prices, and higher interest rates. Each would be manageable for many businesses on its own. Together, they can become a much larger problem.
Tariffs have received less attention lately as wars and geopolitical events have dominated the headlines. Their economic effects have not disappeared.
The headlines changed. The costs did not.
The Fed Is Responding
On Wednesday, the Federal Reserve raised its benchmark interest rate by a quarter percentage point.
My partner, Tim Macarak, CFP®, wrote about the Fed’s decision and why the central bank decided inflation remained serious enough to justify an increase.
Last Monday, I wrote about the 10-year Treasury yield, which had reached 5 percent as oil prices, inflation concerns, government borrowing, and geopolitical risks changed the interest rate outlook.
These are connected stories.
The Federal Reserve directly influences short-term interest rates. The bond market determines long-term Treasury yields based on inflation expectations, economic growth, government borrowing, and the return investors demand for lending money over time.
The Fed is raising the cost of money to contain inflation. At the same time, that higher cost of money becomes another expense for families and businesses already dealing with higher fuel, labor, and input costs.
A business that borrowed at 4 percent and must refinance at 8 percent does not simply have an interest rate problem. It may have a hiring problem, a pricing problem, a margin problem, or eventually a survival problem.
This Is Not the Time to Be a Hero
As investors, we do not need to predict exactly where inflation, oil prices, or interest rates will be six months from now.
We do need to understand what could break if they remain elevated.
This is not the time to rely on heroic forecasts. The range of possible outcomes is simply too wide.
That does not mean selling everything, hiding in cash, or abandoning long-term investment plans. Cash has its own inflation risk. Trying to jump in and out of markets based on headlines is rarely a repeatable investment strategy.
It means applying a higher standard to every investment opportunity.
Does the company have pricing power?
Can it protect its profit margins if costs continue rising?
How much debt does it carry?
When does that debt need to be refinanced?
Does the business generate real cash flow?
Is leverage supporting a productive business, or is it hiding a fragile one?
Does the current valuation leave any room for disappointment?
Leverage can make a good environment look even better. When financing costs rise and margins contract, leverage can also make a difficult environment dangerous very quickly.
At Members’ Wealth, we believe good fiduciary advice should not depend on getting one economic forecast exactly right. We build portfolios with a range of possible outcomes in mind.
For stocks, that means looking for financial strength, durable demand, manageable debt, real cash flow, and businesses capable of passing along at least some of their rising costs.
The same discipline applies to bonds. A high yield may look attractive, but it often exists because the borrower carries meaningful risk. Income matters, but so does the borrower’s ability to repay—and our ability to get our clients’ principal back.
Preparation, Not Prediction
No one knows whether today’s inflationary pressure will fade quickly or prove more persistent. That uncertainty is precisely the point.
Investors do not need to predict the next inflation report, interest-rate decision, or market reaction. They need portfolios—and financial plans—that can withstand more than one possible future.
That means understanding what you own, where inflation creates risk, and where it may create opportunity. It means maintaining enough flexibility to act without being forced to react.
The goal is not to forecast the future perfectly.
It is to be prepared for whatever version of it arrives.
Investment strategies, including rebalancing, do not guarantee improved performance and involve risk, including potential loss of principal. Past performance does not guarantee future results.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
Dane Czaplicki is CEO of Members’ Wealth, a boutique wealth management firm that offers a comprehensive approach to serving individuals, families, business owners, and institutions. The firm’s goal is to preserve and grow its clients’ wealth to endure over time, while thoughtfully evolving its strategy to suit an ever-changing world. With over 20 years of wealth management experience, Dane and the Members' Wealth team thrive on bringing clarity and confidence to clients' unique situations. He believes everyone needs sound financial advice from someone whose interests are aligned with theirs, and is determined to put service before all else.
Dane received his MBA from The Wharton School of Business at the University of Pennsylvania and his bachelor’s degree from Bloomsburg University. Outside work, he enjoys spending time with his wife and kids, hiking and camping, reading, running, and playing with his dog. To learn more about Dane, connect with him on LinkedIn.
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