What’s more, inflation varies significantly from consumer to consumer. The basket of goods used to calculate inflation is based on an average, and not every consumer buys the same items. The data cited each month is also backwards-looking, said Chris Diodato, founder of WELLth Financial Planning in Palm Beach Gardens, Florida.
“A recession is the biggest concern,” he said. “If you get people concerned enough, they're going to stop spending and we’ve already seen that. They're going to get into hunker-down mode.”
Firms do the same thing during recessions, said Katie Nixon, chief investment officer at Northern Trust Wealth Management. From tech to finance, there’s already evidence that companies are dialing back on hiring. “It happens in a logical sequence,” she said. “First you put on a hiring freeze, then you start to lay off.”
Potential job losses are one reason advisers say carefully planning for a recession is so important right now. Having an emergency fund of up to a year could put you in a solid position if you need time to find a new job.
Worst-Case Scenario: Brace For Both
What could be worse than inflation or a recession? Dealing with both at the same time.
Economists are worried about stagflation, which is characterized by high unemployment and slow economic growth combined with persistently high prices. It happened most notoriously in the 1970s, thanks in part to surging oil prices and a weaker dollar.
While most experts don’t think we're in a period of stagflation now, some are worried it could be coming. Michael Caligiuri, founder and chief executive officer of Caligiuri Financial, is skeptical that the Fed will raise interest rates enough to curb high prices.
“There’s a false notion out there that if we enter a recession, then that’ll make inflation go away,” he said. “That’s not necessarily the case.”
Caligiuri recommends investing in hard assets like gold or gold-mining companies, along with other commodities. Despite a recent drop, the Bloomberg Commodity Index is still up about 17% this year, compared with the S&P 500's plunge of nearly 20%. Energy companies are also likely to see more upside, he said.
“People are still going to continue this rotation out of high-growth, speculative names into the more value-oriented names, especially in the natural resource sector that tend to benefit from high price inflation even during a recession,” he said.
This article was provided by Bloomberg News.