Consumers have to face that nasty inflation is here to stay for a while: Morning Brief

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Monday, June 6, 2022

Today’s newsletter is by Brian Sozzi, an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

“It’s a very challenging time right now with inflation,” U.S. Labor Secretary Marty Walsh told Yahoo Finance Live on Friday (video above).

Indeed, and the reality is nasty inflation is here to stay at least into 2023. Sure, we could get the mild recession some policymakers seem to want, and inflation may cool down as a result, but don’t expect prices to pullback to levels you once deemed reasonable. If you want a new pair of jeans, as Levi’s CFO Harmit Singh told me recently, buy them now.

Why are these brutal inflationary forces continuing? It’s simple: There are structural issues amid the post-pandemic world that are feeding the inflation beast.

Skilled workers are too few in number to meet the needs of post-pandemic businesses, leading wages to climb. Even in a recession, skilled workers will be required to meet the demand is being seen. Supply chains are still stuck overseas, where the cost of labor and transportation remains on the climb.

Those issues will hamper semiconductor production until 2024, Intel’s CEO Pat Gelsinger told me. Oil doesn’t grow on trees, and it has become a renewed political chess piece. That suggests prices above $100 a barrel (or higher…) as a new normal.

Jefferies Chief Economist Aneta Markowska summed these trends up nicely in a new note to clients:

“The tightness in the labor market is allowing labor to extract concessions on wages, bonuses and benefits, causing labor costs to ‘chase’ prices higher. This will make it difficult for inflation to decelerate significantly from here as businesses now have to pass higher costs back to consumers in order to preserve margins.

Meanwhile, ample cash and borrowing capacity is allowing consumers to absorb higher prices despite negative real wages, which sustains the positive feedback loop.”

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So what do you do about this attack on your finances?

Stop complaining about inflation on social media, adapt, and overcome. For example, consumers can make lifestyle changes by trading down to cheaper alternatives.

Do you really need Crest whitening toothpaste or will the private label brand work just as well? Conagra Brands and others have reinvented frozen food — it tastes great, and could be useful in one’s cost-cutting efforts. Can you do all your food shopping in one trip to Walmart or Target to save on gas? (This one-trip trend is already being called out by most major retailers as the driver of increased average basket size.)

Instead of visiting Kohl’s for a full price bathing suit, head to TJ Maxx-owned Marshall’s. Retail is awash in inventory after a bad first quarter, and I bet you could get a very nice bathing suit for under $20 at Marshall’s instead of plunking down $40 at Kohl’s.

And before you tweet me a dose of outrage, I don’t live in an ivory tower — I have made a lot of lifestyle changes in recent months due to inflation. No shame in my game with eating frozen food or ordering things online to pick up in store (reduces the impulse to wander a store and buy more) or even waiting for car parts to break before replacing them (not the smartest decision, but whatever).

As for how to adapt and overcome inflation’s long-reach on your stock portfolio, that’s trickier because you can’t control the stock market. All you can do is stay laser focused on long-term wealth building goals, even if it’s painful to stare at a trading account down 30% in Tesla, 20% in Amazon, and 15% in Apple.

Realize none of these three companies are going out of business and that chances are, five years from now all three will probably have higher stock prices than today.

If you are a more active trader, I liked this dose of wisdom recently provided by Charles Schwab chief investment strategist Liz Ann Sonders on Yahoo Finance Live:

“So you want to have a quality wrapper around the types of stocks you’re looking at. I think the factors that have been doing well and I think will continue to do well — which have this sort of quality wrapper around them — would be areas like strong free cash flow yield given what we are seeing in inflation rates, cash rich balance sheets and profitability. This is not the time to go into very long duration companies that have no earnings and prospects for earnings.”

Happy Trading!

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