Shoppers keep a safe distance from a checkout counter in Torrance, California.
Al Seib | Los Angeles Times | Getty Images
The coronavirus pandemic is easing, but the new normal may not look like 2019.
One reason is that the prices of some goods and services have soared due to inflation and could continue to rise, especially if the government pushes ahead with President Joe Biden’s proposed $ 6 trillion spending plans.
This is a major concern for most wealthy investors, according to CNBC’s latest millionaires survey. According to the report, up to 65% of millionaires are concerned about inflation caused by recent government spending. Of these, 34% said they were very concerned.
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The survey, conducted online by Spectrum Group on behalf of CNBC in April and May, included 750 respondents with fixed assets of $ 1 million or more.
In April, the core price index – a key indicator of inflation in the US that excludes the volatile costs of gasoline and groceries – rose 3.1%, according to the Department of Commerce. That was higher than the forecast of 2.9% and the inflation rate of 1.9% of the previous month. Including food and fuel, the display rose 3.6% year-over-year, the fastest pace in 13 years.
The Federal Reserve generally estimates the rate to be around 2%. However, after the pandemic recession, the central bank announced that it would let inflation run a little higher in order to boost the employment rate.
Inflation, especially if it continues and persists, can be a problem for both consumers and investors. Higher costs place a greater burden on wallets, and the overall environment can also weigh on riskier assets.
“In general, stocks do better in a low-inflation environment than in a high-inflation environment,” said David Kostin, chief US equity strategist at Goldman Sachs, in an interview with CNBC’s “Squawk on the Street” on Tuesday. “Alternatively, falling inflation is generally better than rising inflation.”
Reduction of fears of inflation
While many investors are concerned about inflation, some groups see it as more of a problem than others. For example, 85% of Republican millionaires are concerned about rising prices compared to 42% of their Democratic counterparts.
Younger investors are also more concerned than their elders. 52% of Millennial Millionaires said they were “very concerned” about inflation, compared to 40% of Generation X and 31% of baby boomers surveyed. Overall, men were more concerned about inflationary pressures than women.
Another reason why rising inflation worries investors is that it could get the Fed to hike rates. That could be a headwind for stocks and means that borrowing will become more expensive.