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Finance Tip Friday #60: Could the Worst of Inflation Be Over?

Concept of financial, economic problems and inflation

Inflation was rampant throughout 2022, with values over 8 percent. But with recent reports from the U.S. Bureau of Labor Statistics (BLS), could rising costs finally be curbed? Are the interest rate hikes by the Federal Reserve actually working?

To better understand, let’s remind ourselves what exactly inflation is. When the BLS reports inflation, they’re telling us the 12-month change in the CPI (consumer price index). The CPI is more or less a mixed basket of goods that a typical urban consumer would spend in a given month for things like:

  • Food 
  • Energy
  • Commodities
  • Shelter
  • Transportation
  • Medical care services – Yes, even nurse practitioners can add to this figure!

Now think about your last few shopping trips. If the price you pay at the gas pump or the grocery store seems like it’s starting to taper off, then market prices are starting to stabilize. For the CPI, this means the value month over month would only increase slightly or perhaps even decrease. But relative to a year ago, the gap in this price delta should start to narrow – meaning that inflation won’t be as significant.

I think we’re still many months (possibly even a year or so) away from these numbers coming back down to Earth. But I do see something else happening as these numbers slope back down: Opportunity.

The stock market loves it when inflation is on the decline because it means the following:

  • The cost of doing business will stabilize, and companies can do a better job of locking in operating expenses and profits
  • The Fed will pause on interest rate hikes or potentially someday even reverse them, making money cheaper to borrow.

When that happens, I can tell you where I want to be – sitting pretty with a handful of shares I bought up in the prior months. If you wait until after the market rallies, then it will be too late. The time to get in on these opportunities is to take a chance now and be patient as you wait for the economy to stabilize.

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