A recent report from the Bureau of Labor Statistics contained some positive news for consumers in the U.S. – several key inflation indicators came down in October, a sign that consumer prices could finally be reaching a peak, according to economists. Wholesale prices rose by 8% in October, the smallest increase since July of 2021. The Producer Price Index (PPI), a measure of the prices paid for goods before they reach the consumer, rose 8.3%, down from September’s revised 8.4%. Year-over-year core PPI, which excludes food and energy, was down to 6.7% from September’s revised 7.1%. While these decreases were not as significant as consumers would hope, analysts took them as a sign that the price of goods and services are returning to normal.
Of course, the numbers do not tell the whole story. Although various economic measures may look promising, consumers are still seeing significantly higher prices for goods and services than they were at this time last year. If inflation is going down, why are consumers still feeling the pinch? The team at Crash Proof Retirement has an analysis of several factors that are impacting consumer prices, and how economic conditions could look over the winter.
Higher Food Prices
An October report from the data collection and analytics firm IRI indicated that food prices are a significant factor that is driving overall consumer prices higher. While wholesale prices and PPI went down from September to October, average food prices increased by 1.4% during the same time period. Although the prices for produce and deli items were fairly consistent with overall inflation, center-store inflation (which includes items like cereal, snacks, and processed foods) was significantly higher. A rise in frozen food prices were also a major driver of inflation, increasing 18.4% from the year before. Dairy was another category that experienced sharp increases, with prices rising 21.3% from their levels in September 2021.
High Energy Prices
A number of factors have affected the price of oil recently, raising prices for energy, goods, and services across the board. The COVID-19 pandemic led to decreased oil production, and when travel restrictions were lifted, oil supplies failed to recover to meet consumer demand. This caused prices to skyrocket in 2021 and 2022. In response, the Biden administration released millions of barrels of oil from the United States’ strategic reserve, which provided a short-lived respite from rising energy prices, but overtly refused to increase domestic production through new drilling. The price of oil increased sharply in 2022, as OPEC decided to cut oil production by 2 million barrels per day in October 2022 and again during Russia’s invasion of Ukraine, which caused irreparable damage to the oil market as Russia is the world’s third largest producer of the commodity.
The U.S. Energy Information Administration (EIA) expects energy prices to continue rising over the winter of 2022-23. Their forecasts predict a price increase of 60 cents per gallon compared to last year for heating oil, or 71 cents per gallon when compared to averages from the previous five winters. The EIA also expects electricity prices to rise by 11% from last winter. Americans, especially older retirees living on fixed incomes, must be prepared this winter for higher heating and electric bills, which will make it even harder for seniors to make ends meet.
Weak Economic Growth
After contracting during the first two quarters of 2022, the United States Gross Domestic Product (GDP) grew 2.6% in advanced estimates for the third quarter. Of course, this number will be adjusted in the coming months and is likely to come down. With all three major stock market indices down over the past year, weak economic growth will signal to investors that it is time to sell, leading to further declines in stock market performance. This is bad news for those who are in or near retirement, as the value of any securities-based investments they hold will decline rapidly.
Supply Chain Issues
The COVID-19 pandemic and the war in Ukraine have caused supply shortages across the board, and the global economy has been slow to recover. As demand increased in the post-pandemic environment, certain technological goods, like microchips, have run in short supply causing a drastic rise in price, leading consumer prices for electronics to go up significantly. Food supplies have also been an issue. Although the global supply chain is slowly rebuilding, it will take years before prices stabilize and return, if possible, to their pre-pandemic levels.
A Deeper Recession Could be Right around the Corner
While inflation may have eased slightly, it is still historically high. That fact, coupled with a sluggish stock market and high energy prices have combined to make a recession likely in the near future. Some analysts even believe that the U.S. entered a recession in the second quarter after GDP numbers were finalized over the summer, even though many economists refused to call it as such. Regardless, experts across the spectrum are currently predicting that the U.S. will officially enter a recession sometime in the early part of 2023, due to the Federal Reserve’s aggressive approach to tightening the economy. If their predictions come to fruition, it will be a disaster for anyone who is invested in risky securities-based financial vehicles like stocks, bonds, and mutual funds. These investments drop rapidly with the stock market, and those in or near retirement will be hit especially hard. With their working years behind them, older Americans will have little opportunity to rebuild their nest egg in the face of an economic crisis.
If you are concerned about how inflation and recessions will affect your investments, now is the time to learn more about the revolutionary Crash Proof Vehicles, used exclusively in the proprietary Crash Proof Retirement System, which are guaranteed to protect your principal when the stock market crashes. You can find out more about these and other important investment alternatives that traditional financial planners in the Wayne, PA area won’t tell you about by contacting Crash Proof Retirement today. Our licensed retirement educators can tell you more about the Crash Proof Vehicles and how they can fit into your retirement planning strategy. Call 1-800-722-9728 or fill out the online form on our contact page to schedule your free financial checkup right away.