Greedy companies tend to lose when the inflation cycle subsides

As I said in a previous column, when the market is discouraged and the big question has become “how bad is it going to be?” instead of “how much and when can I take advantage of the turnaround?” I’m starting to wonder what the market might be missing.

One story the market seems to have accepted – at least for now – is that inflation will remain a nagging problem for some time to come, partly because of rising costs and partly because companies can get away with it. shoot by charging more. Rising prices lead workers to demand higher wages, which forces companies to raise prices, and so the vicious circle continues.

But that can’t last forever unless the US government continues to increase the money supply. Some countries have tried this from time to time with ruinous results. When there is hyperinflation, businesses and their customers cannot make long-term plans because they have no idea what their future purchasing power will be.

Imagine trying to plan a wedding a year in advance when you don’t know if the catering bill will be $75 per person or $250, not to mention uncertain about how many guests can attend. allow them to attend. The answer? Postpone or run away, which means a slew of wedding vendors are losing business.

There are three forces that can derail the inflation train, and they will probably all work together. The first, of course, is the influence of the Fed on interest rates. The Fed raises rates, making it more expensive to borrow and spend. The second is the natural constraint of our budgets. We can (and I do) eat less or order less if we go out. We have less control over some expenses, like utility bills and rent, but the main point is that demand generally decreases as prices rise. The oil cartel has understood this well: if it reduces its production too much, prices will rise enough for energy consumers to change their habits.

There is a third force at work, and that is competition and innovation. Companies that get too greedy risk being undermined and losing market share. Cable television, long distance telephone services, air travel and the music industry have all suffered the wrath of competition and innovation. Most of these benefits end up trickling down to us, we pay lower prices for ever-improving goods and services.

Economists and analysts are writhing trying to predict how much the Fed will raise rates and when inflation will fall. I’m sure it will, but I won’t try to predict when. The economy will continue to grow and slow in irregular cycles, as it always has. While waiting for the next phase of the cycle, I look for companies that are lean and hungry enough to take business at price increases.

Evan R. Guido is the founder of Aksala Wealth Advisors LLC, a member of the Forbes Next-Gen Advisors 2018 list and a finance professional at Avantax Investment ServicesSM. Evan leads a team of retirement transition strategists for clients who consider themselves the “millionaire next door”. He can be reached at 941-500-5122 or [email protected] To learn more about his ideas, visit Securities offered by Avantax Investment ServicesSM, member FINRA, SIPC. Investment advisory services offered by Avantax Advisory ServicesSM, insurance services offered by an insurance agency affiliated with Avantax. 8225 Natures Way, Suite 119, Lakewood Ranch, FL 34202.