Supply and Demand Woes, Energy Costs Fuel Inflation
As inflation continues to ravage global markets, investors tend to diversify their portfolios with bonds, precious metals, and commodities.
That's according to a new?Forbes column?authored by AI investing app Q.ai. In the article, the company shares its take on why it believes inflation is still so high, and the factors driving it.
Q.ai attributes inflation's persistence to a handful of factors, first mentioning supply and demand mismatches.
"As we continue to move past the pandemic, some households have pent-up demand for specific items," Q.ai wrote. "For example, many households are looking to purchase a vehicle. With demand remaining approximately the same, a decreased supply of new cars due to issues securing the necessary parts has created a perfect storm of soaring prices for vehicles."
The company states that rising energy costs have also fueled inflation, chiefly driven by the Russian invasion of Ukraine.
With the U.S. Bureau of Labor Statistics' latest Consumer Price Index showing that the cost for urban consumers has risen by 8.2% over the last year, Q.ai?highlighted some household items that have been severely impacted by inflation, including:
With the current rate of inflation far ahead of the Federal Reserve's 2% target, the Fed's board has voted numerous times to raise federal interest rates this year, most recently doing so just last week, when the federal rate was increased to a target range of 3.75% to 4%.
?When it comes to navigating inflation from an investing standpoint, Q.ai writes that it's important for investors to focus on real returns, which account for returns after taking inflation into account.?
"For example, if your returns are 10% but inflation is 8%, your real returns are only 2%," the company writes.?