Schedule a Free Consultation

facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Understanding Inflation in 2021: What Investors Need to Know Thumbnail

Understanding Inflation in 2021: What Investors Need to Know

Following a year of economic instability, it appears that many of us are turning our attention to something that’s been around for decades, but has recently piqued national interest - inflation. In fact, a recent study found that people are Googling the word “inflation” at a rapid rate, with a peak not seen since 2008.1   

Since the start of the COVID-19 pandemic, six major stimulus bills totaling around $5.3 trillion have passed. With these efforts to alleviate pandemic-fueled financial strife, are inflation levels being impacted?

Fed Chair Jerome Powell has said that inflation is likely to pick up as the economy recovers from the pandemic, but he believes it will be temporary. Powell has also stated that the central bank plans to keep short-term rates anchored near zero through 2023.2  

As you consider any potential changes to inflation we may be seeing this year, here’s a reminder about what inflation is and how it can affect you and your investments.

What Is Inflation?

Inflation is defined as an upward movement in the average level of prices. Each month, the Bureau of Labor Statistics releases a report called the Consumer Price Index (CPI) to track these fluctuations.

Understanding the Consumer Price Index

The CPI was developed based on information provided by families and individuals on purchases made in the following categories:3  

  • Food and beverages
  • Housing
  • Apparel
  • Transportation
  • Medical care
  • Recreation
  • Education and communication
  • Other groups and services

While it’s the commonly used indicator of inflation, the CPI has come under scrutiny. For example, the CPI rose 1.4 percent between January 2020 and January 2021 – a relatively small increase. A closer look at the report, however, shows the movement in prices on various goods tells a different story. Used car and truck prices, for example, rose 10 percent during those 12 months.4 

Investments & Inflation

Inflation can affect investments in several ways. Most notably, it can reduce the rate of return, risk purchasing power and influence the Federal Reserve.

Rate of Return

Inflation reduces the real rate of return on investments. Say an investment earned six percent over a 12-month period. During that time, let's say inflation averaged about 1.5 percent. That would mean that your investment’s real rate of return would have been 4.5 percent - not six percent.

Purchasing Power

Inflation puts your purchasing power at risk. When prices rise, a fixed amount of money has the power to purchase fewer goods and services.

The Federal Reserve

In addition, inflation can influence the actions of the Federal Reserve. If they want to control inflation, the Federal Reserve has several ways in which it can reduce the amount of money in circulation. Hypothetically speaking, a smaller supply of money means less spending - which could equal lower prices and lower inflation.

With so many changes over the past year or so, it’s no wonder investors and consumers are concerned about the rate of inflation today. When inflation is low, it’s easy to overlook how rising prices are affecting a household budget. And when inflation is high, it may be tempting to make changes to your financial standings and portfolio. If you’re concerned about the inflation rates we’re seeing in 2021, your trusted financial partner can help determine if changes need to be made or if you and your portfolio are already well-prepared.

Click here to schedule a call with a BWC advisor today.


  1. https://www.yahoo.com/entertainment/google-searches-reveal-people-are-growing-very-worried-about-inflation-163908703.html?guccounter=1
  2. https://www.cnbc.com/2021/03/17/fed-decision-march-2021-fed-sees-stronger-economy-higher-inflation-but-no-rate-hikes.html
  3. https://www.bls.gov/cpi/
  4. https://inflationdata.com/Inflation/Inflation_Rate/CurrentInflation.asp?reloaded=true

The information presented in this article is obtained from or based on sources believed to be reliable. BWC does not represent or warrant its accuracy or completeness and is not responsible for losses or damages arising out of errors, omissions or changes or from the use of information presented in this article. The article does not purport to contain all the information that an interested party may desire and, in fact, provides only a limited view. Information presented does not constitute an offer to sell or a solicitation of an offer to buy any security.

All investments involve risk, including loss of principal invested. Past Performance does not guarantee future performance. Individual client accounts and performance vary. BWC does not provide tax advice.

About Beirne Wealth Consulting Services, LLC – www.beirnewealth.com

Beirne Wealth Consulting Services, LLC (“BWC”) is a privately owned, SEC Registered Investment Advisor with offices in Connecticut and Pennsylvania. BWC provides independent, fee-based investment management services and customized financial planning solutions. Our institutional business provides consulting expertise to defined benefit and defined contribution plans, endowments, foundations and non-profit organizations. Our private clients include high net-worth individuals and prominent families, many of whom bring complex wealth management challenges and multigenerational planning needs. For more information, please visit www.beirnewealth.com or give us a call today at 888-231-6372.

*Registration does not imply a level of skill or training.