Economic fluctuations, particularly inflation, are causing unease among investors.
In recent times, various goods such as oil, gasoline, wood, chicken wings, semiconductors, steel, and more have been subject to supply shortages and above-average price increases. This trend is not exclusive to one region, with Germany witnessing a 29% surge in heating oil and fuel prices in May, and the US seeing consumer prices rise by 5% year-on-year in June.
The economic landscape has been significantly altered by the COVID-19 pandemic, with many industries experiencing a sudden surge in demand for their products. Simultaneously, numerous providers have gone out of business or reduced their product range due to cost reasons, leading to empty markets.
Energy prices, in particular, have soared compared to the previous year in Germany, contributing to an overall inflation rate that reached 2%, its highest level in almost a decade. The current consensus among experts on whether these price increases are temporary or the beginning of longer-lasting inflation is mixed and evolving.
1. **Short-Term vs. Long-Term Inflation**: Some experts believe that while the current inflationary environment has improved, it could pick up again due to factors like tariffs and rising inflation expectations. The New York Fed’s survey shows a one-year-ahead inflation expectation of 4.3%, up from 3% in November 2024, indicating potential for sustained inflation. On the other hand, some economists predict that inflation might remain above the Fed's 2% target until the end of 2027, suggesting a longer-term inflationary trend.
2. **Impact of Tariffs and Supply Chains**: Tariffs have not yet significantly impacted consumer prices, mainly because businesses are absorbing costs or working through pre-tariff inventories. However, over the summer, tariffs are expected to start affecting prices, potentially leading to a stronger pass-through. Supply chain pressures and producer price indices suggest ongoing inflationary pressures, but these are not yet alarming at the consumer level.
3. **Role of Inflation Expectations**: Elevated inflation expectations, as seen in surveys, tend to influence actual inflation. This suggests that even if current price increases are moderate, expectations could drive further inflationary pressures.
4. **Economic Recovery and Future Outlook**: The economic recovery post-pandemic is still underway, but persistent high consumer prices and uncertainty are affecting consumer confidence. A growing share of economists predicts that inflation might retreat by the end of 2026, though this remains uncertain.
In light of these factors, investors should consider allocating some funds to tangible assets like stocks, real estate, and commodities due to the unlikely yield of positive real returns in money markets and bonds. The US Federal Reserve plans two interest rate hikes in 2023 and aims to phase out bond purchase programs by then. Even with smaller investment volumes, it's advisable to invest in tangible assets given the current negative interest rates.
[1] New York Fed Survey of Consumer Expectations, May 2025. [2] Bloomberg Economics, June 2025. [3] Federal Reserve Bank of St. Louis, June 2025. [4] Bank of America Global Research, June 2025.
- In response to the economic landscape altered by the COVID-19 pandemic and the current inflationary environment, individuals should contemplate investing in tangible assets like stocks, real estate, and commodities, as such investments might yield positive real returns in light of the unlikely yield in money markets and bonds.
- Given the debated consensus on whether the current inflationary trends are temporary or the start of a longer-term inflationary period, and the subsequent impact on various economic factors, one's personal-finance strategy should take into consideration the role of economic and social policy, finance, and investing in shaping the overall financial landscape and one's financial well-being.
