Inflation expectations can become self-fulfilling

Last Saturday I was heading to the Three Floyds Dark Lord Day beer fest in Munster with a couple buddies and my brother. My brother and I had already made a pact with each other to behave, get in, get lunch, get our beer and leave. Dark Lord Days of the past had not been executed so effectively and expectations from my wife Tracy on these objectives were low. To help me meet my "performance goals" Tracy cleverly delegated me an errand before I left.

That night my brother and sister-in-law, adult nephew and new niece were coming in from out of town. She needed me to plan and pick up dinner. My brother-in-law spoils me with good bourbon, so I wanted to plan a nice grilled feast on my new Blackstone for the evening, so after the beer fest, off to Meijer I went.

We would grill some nice New York strips, summer veggies, baked potatoes, a blanched asparagus appetizer and berry pound cake with whipped cream for dessert. I also picked up some eggs, bacon and hashbrowns for Sunday breakfast and a few other items. I was clearly going to deliver for my wife and our guests, credibility preserved.

Now, there is something important to know about me. I can trade tens of millions of dollars of stock and bonds for clients without breaking a sweat, craft extraordinary financial models to confidently help people plan far into their future. I can ski Colorado black diamond ski slopes with poise and mountain bike like someone 20 years younger, but put me at a self-checkout lane in a grocery store, especially when there is a line behind me, particularly when some of the stuff in my cart has to be weighed, and I'm heading directly and quickly toward heart palpitations and hyperventilating. I simply don't do grocery stores well and try to avoid them, and there is always a line at Meijer on Saturday.

This time however, I was on a role. I executed at the fest, had a great dinner planned and went into the self-checkout with confidence, scanning and weighing like a practiced Mom. Until the total came up on the screen. $372, this was impossible. I must have screwed something up. It was only two meals and some drinks, there wasn't even any alcohol. I panicked, what was I supposed to do, overpay by what was in my estimation at least a $100 or ask for help? I looked around, the line was long but moving, the young self-checkout attendant looked available, I made the call, pressed the button and the help light lit up.

The young guy came over with a bored but friendly demeanor, "can I help you?", he asked. "Um yeah, I think some of this stuff must have scanned twice because my bill doesn't seem right", I replied. He looked at me, less annoyed than I anticipated and said, "let's review the items in your cart" as he started the process with impressive competency, looking at items and finding them on the screen.

I couldn't even turn around and look at the line. I imagined the busy Saturday people behind me glowering at me in disgust, but the attendant was very good, and the process was going fast. "Ooops" he said, I knew it, I had scanned the steaks twice just as I thought, "you missed this garlic clove", he continued. He punched a couple buttons, and my new total came up, $374. "Looks like you're all good now", he said as he walked away.

So, when I'm being continually asked, "Marc, when do you think inflation is going to get better?", this is what they mean. Candidly, in my daily life, I'm a bit insulated from this pain. Most of the "stuff" I buy comes from Amazon, where I buy one or two things at a time and don't notice the price changes, or is big discretionary items like trucks or bikes, where to some extent prices can be negotiated and shopped.

Tracy handles most of the daily bulk buying for the home, and while I see the credit card Costco charges alerting on my phone, I am always assuming she is buying more than just groceries. Maybe she isn't.

The problem with inflation proving as persistent as the current cycle, which began in 2021, is after a while inflation itself can become self-fulfilling as people come to expect price increases and start adjusting their behavior as a result. I'm afraid we may be close to this trend taking hold, which is the precursor to hyperinflation.

Hyperinflation taking hold in an economy changes everything. Consumption habits, interest rates and borrowing, even the citizenry's relationship with the government. Hyperinflation requires direct individual countermeasures. Hyperinflation topples regimes. I don't think we are there yet, but it can't hurt to revisit some lessons from other periods where this trend emerged. Next time, maybe some burgers will suffice.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.