As if anyone needs a reminder of inflation’s impact on 2022, U.S. consumers continue digging deeper in their wallets as inflation hit its highest point in 40 years.

According to the Labor Department’s Consumer Price Index, inflation increased by 8.5% for the 12-month period ending in March, the highest level of inflation since January 1982. Food and energy prices continued to lead the way: Energy soared a walloping 32% over the previous 12 months, food 8.8%.

By now, the factors driving inflation are familiar: pent-up consumer demand, the ongoing war in Ukraine, continued supply chain disruptions, and labor shortages, among them.

With inflation on the rise in the U.S. and globally, Covid-19 lockdowns in China, and the Russia-Ukraine War continuing to affect the economy, experts at the International Monetary Fund and World Bank are predicting a slowing of global growth. The IMF downgraded growth projections to 3.6%, from 4.4% in January. Both are significantly lower than world GDP growth of 6.1% in 2021.

Record inflation continues to be news in many parts of the economy. The shelter index (the costs associated with housing, not including investments and upgrades) is up 5.0% in the past year (the biggest rise since May 1991), and used cars and trucks are up 35.3%.

But a few bright spots are also appearing.

Retail sales rose 0.5% in March, the third consecutive month of increases. A survey by the Institute for Supply Management (ISM) indicates a shift in spending back toward services from goods, with growth in several areas, including education, arts, entertainment, and recreation as well as utilities, construction, and accommodation and food services. However, the ISM also suggested capacity constraints, inflation, and the ongoing effects of the Russia-Ukraine War will remain challenges.

With inflation rising at more than three times the Federal Reserve’s target rate, Fed policymakers, like consumers and investors, are also taking notice.

Whatever course inflation takes, it’s clear that navigating new and rocky waters will be a top-of-mind concern for everyone — including your clients.

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