A May 10th Kiplinger article shows the moderate hike in April prices of 0.2% is consistent with inflation rising this year to a 2.6% rate. That is an increase from the 2017 rate of 2.1% and reflects higher overall prices, particularly for gasoline. Housing costs are expected to rise 3.5% this year, above the 3.1% increase last year. In addition, the tightening labor market is expected to start generating significant wage inflation in the second half of the year. The Consumer Price Index, a measure of the average cost of consumer items that people purchase for day-to-day living, such as food, clothing, shelter and medical services, is now well above the 1.8 percent annual average increase over the past 10 years, which is leading us to re-consider the negative effects of inflation and what they can do to retirement savings.
Central bank officials have said they are planning to raise rates three times this year. That could go up to four hikes, depending on how June unemployment rate numbers play out. Along with an increased cost of accessing credit, these moves could affect equity or stock investments and bonds. If you are considering a rebalance of your retirement portfolio to protect against inflation, be aware that some Annuities can include Cost Of Living Adjustment Riders to protect against erosion of retirement savings. Another way to address future price increases is to have contractual income streams starting at different times. Just like you can ladder CDs or bonds with different maturities, you can also ladder lifetime income.
