4 Pervasive Myths About Inflation
4 Common Myths About Inflation—And the Facts You Need to Know
Lately, it feels like inflation is everywhere. Prices at the pump, the grocery store, and even your favorite coffee shop are all higher than they were a few years ago. And with new tariffs set to take effect at midnight, concerns about rising costs are growing. Tariffs can drive up prices on imported goods, potentially adding more pressure to inflation—making it even more important to understand what’s fact and what’s fiction when it comes to inflation.
For many people, inflation already feels worse than it actually is. When we expect prices to keep rising, we may rush to buy things before they become more expensive—ironically, helping fuel inflation even further. This cycle highlights why perception plays a powerful role in economic trends.
At Totemic Wealth & Planning, we believe that understanding the facts is key to making confident financial decisions. Let’s break down four of the most common myths about inflation and what’s really happening behind the numbers.
Myth 1: Inflation Is Always Bad.
Fact: Inflation can be beneficial in the right conditions.
While rising prices can be frustrating, some inflation is actually a sign of a healthy economy. Moderate inflation, around 2%, is considered ideal by the Federal Reserve because it encourages spending, investing, and economic growth. On the other hand, too little inflation—or deflation—can signal economic trouble.
Myth 2: Inflation Affects Everyone the Same Way.
Fact: The impact of inflation varies depending on your financial situation.
Inflation erodes purchasing power, but its effects differ based on factors like:
- Income: Retirees on fixed incomes often feel the pinch more than younger workers with increasing wages.
- Debt: Those with fixed-rate loans (like mortgages) may benefit from inflation, while people with variable-rate debt may see higher payments.
- Housing: Homeowners with fixed-rate mortgages generally experience stable housing costs, whereas renters may see their expenses rise.
Understanding how inflation affects you personally can help you plan accordingly.
Myth 3: The Government Alone Causes Inflation.
Fact: Inflation is driven by multiple factors.
While government policies—like interest rates and stimulus measures—play a role in inflation, they’re far from the only cause. Supply chain disruptions, global events, technological advancements, and even consumer behavior all contribute to rising prices. Inflation is complex, and no single factor is entirely to blame.
Myth 4: Inflation Always Leads to a Recession.
Fact: History shows that inflation can precede bull markets, not just downturns.
Looking back over the past 40 years, we’ve seen inflationary spikes similar to today—most notably in 1982 and 2009. But contrary to popular belief, those periods weren’t immediately followed by recessions. Instead, bull markets emerged, signaling economic resilience and growth.
While some analysts still predict a recession ahead, others view this as a transitional phase, pointing to continued job creation and consumer spending as reasons for optimism.
How to Stay Ahead of Inflation
We can’t control inflation, but we can control how we respond to it. The key is to focus on long-term financial strategies rather than short-term market fluctuations. Staying diversified, being mindful of cash flow, and regularly reviewing your financial plan can help you stay on track—no matter what the economy does next.
At Totemic Wealth & Planning, we help our clients navigate uncertainty with confidence. If you’re wondering how inflation could impact your financial future, let’s talk. Schedule a consultation today.
Sources:
2. https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Inflation
3. https://www.richmondfed.org/publications/research/econ_focus/2024/q1_q2_federal_reserve
4. https://www.fool.com/investing/2024/01/09/last-inflation-fell-fast-9-year-bull-market-stocks/
5. https://www.forbes.com/advisor/personal-finance/when-will-inflation-go-down/
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