Last year, you predicted an upbeat economy from the grip of the pandemic. Back then, did inflation ever enter your mind as a possibility? Did we see it coming? The answer is yes. Back in May and June 2021, we had expected to see a notable increase. But what we didn’t anticipate is the degree to which [inflation] has persisted and the level at which it’s persisted. So, it’s this higher and longer period of inflation that’s surprised us. What do you think is causing this surge in inflation? For one, the unprecedented response from governments and central banks across the world to stem the impact of COVID. The strength in demand for goods and services is one of the biggest drivers. And when you add to that supply and labor shortages, you get the price increases we’re seeing. What’s more, low- interest rates have fueled higher real estate values and rents, so that’s another factor in the inflation increase.
well the economy and the stock market do in light of higher inflation. The answer so far has been “just fine.” The economy has continued to expand at a good pace, although the third quarter of 2021 was a little weaker than expected. But the fourth quarter is tracking to a very strong growth rate of almost 8%, although that will probably come down a bit. Under these conditions, what should your bank clients — and Californians in general — do to cope financially? What we’ve been watching for — and haven’t seen quite yet — is the degree to which Californians change their spending patterns across the board in response to inflation. At some point, it probably will take a toll, leading to reduced spending that could impact the local economy. My advice to investors is that they shouldn’t panic. They should be patient and remain committed to an investment program. Stocks are still the best hedge against inflation. It’s the one investment that weathers the storm better than any other.
What’s the impact of this situation on CB&T clients? The environment creates uncertainty regarding how
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IN YOUR CORNER ISSUE 10 | 2022
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