What People Think About Inflation with Mark Biller

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Learn more at soundmindinvesting.org. Everyone knows what inflation means, right? Well, actually, you'd be surprised by how fuzzy some thinking about inflation really is. Hi, I'm Rob West. Is inflation a rise in prices or simply high prices?

Or does it mean something else entirely? The results of a recent poll may surprise you, but we've got Mark Biller with us today to explain it. And then it's on to your questions at 800-525-7000.

That's 800-525-7000. This is faith and finance biblical wisdom for your financial journey. Well, our guest Mark Biller is the executive editor at Soundmind Investing, where they absolutely know what inflation is. Mark, great to have you back with us. Thanks, Rob.

Thanks for inviting me back. So Mark, what's going on here? You recently noted a survey where people's understanding of what inflation actually means was all over the map.

So why don't we start there? Yeah, that's right, Rob. So the survey recently caught my eye. It was asking 2200 people how they define the term inflation. And most of the respondents, not surprisingly, this was 86 percent, said they're worried about inflation. But where it got really interesting was what people thought inflation really was. So some people thought it meant a rise in prices. Other people thought it meant just high prices. And there was general confusion over what time period we're talking about and a lot of the other details. All in all, it was a pretty hazy picture that emerged from these survey results. Now, specifically, the survey found that fewer than half the people defined inflation as a rise in the cost of goods and services. And that actually is the correct definition of inflation.

Sure. Now, this fuzziness was actually very widespread. Only 53 percent of college graduates correctly said that inflation was an increase in prices. So it's not something like, you know, the educated people know what it is and the uneducated don't. I mean, there's a lot of confusion across the board about this. About 20 percent of the people said inflation just means high prices. About a third said it meant that prices are rising faster than wages. Things got really dicey when they asked if inflation is higher today than it was a year ago. Two thirds of people said it was. Actually, it isn't.

So there's a lot to unpack here today, Rob. That's kind of the bottom line. Yeah, no doubt about that. Now, clearly, the survey shows that many folks have a fundamental misunderstanding of what inflation is, but they seem to know that it isn't good and wish it would go away. Right.

That is the one thing they can all agree on. But, you know, I do think that a huge part of the problem here is there's a fundamental disconnect between how economists and financial people tend to talk about inflation and how normal people experience inflation. So economists, and I'll put myself in this financial group, we tend to talk about the rate of change of prices. And so that rate of change peaked at nine percent annual inflation two years ago in the summer of 2022. Now that rate of increase has declined from nine percent per year two years ago to between three and three and a half percent today. So economists and financial types correctly say that inflation has declined. But what they actually mean by that is the rate of increase in prices has slowed down. And that's a totally different thing than saying that prices are actually going down. They're not going down. They're just rising at a slower rate. Yeah. And you're hitting on the difference between the way the financial world sees inflation and the average person, right?

That's right. So real people experience inflation cumulatively. They don't really care that the annual rate of inflation has round tripped from three percent to nine percent and back to three percent over the last few years. That's really the Wall Street financial story. And that implies that prices are getting back to normal, which is absolutely not the case. The Main Street story is the cumulative cost of inflation. And over the last four years since just after covid, that's been a twenty two to twenty five percent total increase.

Yeah, exactly right. Well, when we come back with Mark Biller today, we'll continue to unpack that. So is inflation transitory? That's at least what we heard from the Federal Reserve when this first started. And what are the investing implications of inflation? Mark Biller from Sound Mind Investing with us today.

Back with much more right around the corner. Stay with us. We are grateful for support from Sound Mind Investing in the Faith and Finance Program. For more than 30 years, they've been helping Christians reach their financial goals with step by step guidance for investors at every stage, from those just getting started to those getting ready for retirement. Through scriptural principles and practical suggestions, SMI offers financial wisdom for living well. More information, including the short video webinar on profit and peace of mind, no matter what's happening in the market, is available at soundmindinvesting.org. Thanks for joining us today on Faith and Finance.

Today, joining me is Mark Biller, executive editor at Sound Mind Investing. We're talking about inflation. In fact, a particular survey that Mark was referencing before the break that made it clear that the average person doesn't understand what inflation is, although they know it's not a good thing. And Mark, you were making this important distinction about inflation being cumulative. And although Wall Street is really focused on that annual inflation rate, Main Street recognizes that if inflation is cumulative, that means prices aren't going back down. We're always building on last year's inflation and things are just getting more expensive over time, right?

Yeah, absolutely. And I mean, the bottom line here, Rob, is regardless of what the annual inflation rate is right now, if that's a positive number at all, it means that prices are still going up. And more to the point, you know, if you use the trueflation website numbers, the official CPI is a little bit lower, but the trueflation website tells us that prices are up 25 percent over the last four years.

So that's just general. Across the board, prices are up about a quarter over the last four years. And whether that precise increase is 22 percent versus 25 percent, it doesn't really matter.

The general psychology matters a lot, though. We all roughly remember what things cost three or four years ago before we had this big inflation surge. And we're painfully aware that everything we buy now costs a lot more. Yeah. And it's safe to say, just to be clear, that prices aren't going back down, right?

Yeah, that's correct. You know, unfortunately, the dirty secret of inflation is the prices never go back down. You know, we see the inflation rate come back down. But again, that's just the rate of future additional price increases.

We're stuck with this 25 percent higher costs in on everything at this point. Yeah. Well, you speak to this idea of inflation being transitory. That's at least what the Fed told us when this began to really spike above the historical levels.

Yeah. So that misunderstanding over transitory, I think, does largely come down to the difference between this financial understanding of the inflation rate versus the cumulative change in prices that people actually experience. And, you know, unsurprisingly, that's what they think of as inflation. Now, to be clear, I don't believe for a moment that the Fed thought that inflation was going to go as high or last as long as it did. But if you look in a broad context, if you squint your eyes a little bit, Rob, you can actually say that that rate of inflation was sort of transitory. It spiked from three percent to nine percent and then came back down. And that all happened within a couple of years.

Again, though, normal people don't care about that. They care about the price level and those prices, those weren't ever likely to go up and come back down at best. They were going to go up and then plateau at this higher level. And I think the Fed understood that, which made the communication about transitory really a problem from the get go. It was problematic at best. It was borderline disaster, given that inflation did run way further away from them than they thought it would. Yeah, there's no question about that.

All right. Well, then the million dollar question is, what is the future of inflation look like? Yeah, it's a big question, obviously, but I think the most important thing to understand about where the fight over inflation stands right now is that while inflation has come down a lot, that current rate of around three percent between three and three and a half is still a long way from the Fed's stated goal of two percent. And that's why the Fed has dragged their feet on cutting interest rates because they just can't get that inflation rate below three percent consistently. And unfortunately, the longer that inflation stays sticky on the high side, the more these inflation expectations become embedded in people's minds. Now, it's already been over three years since these prices really started flying higher.

That really took off in the second quarter of twenty twenty one. And the longer this goes, you know, people start changing their expectations, their behaviors when they start to think that inflation is going to persist. You know, you probably see the same news headlines that I do about, you know, different labor unions and whatnot, turning down pay increases of 18 percent, things like that. They're kind of signs of the times of what's going on with inflation. We've written quite a bit about some of the structural reasons why we think that this persistently higher inflation is probably going to be with us for a while. So it really won't surprise me, Rob. If eventually the Fed has to let go of that two percent target and revise their kind of formal inflation target higher to, you know, maybe two and a half or three percent.

Interesting. Now, of course, there's implications to inflation as consumers when we're out shopping and paying for things. There are also implications of higher inflation to investing.

So share some of those with us. Yeah, absolutely. So this regime shift and inflation does have really significant implications on how we want to look at our investments. I think the most obvious and direct impact we've already seen a lot of this. It's been the clear rise in interest rates and those interest rates spiking higher after a decade of being pinned at really low levels. Over the last three years, we've seen these rates go up quite a bit.

Now, you look in a historical context and rates between four and five percent are not historically high. But when they were down around one to two percent for so long, that's a big adjustment. And that increase in interest rates has really hurt bond returns over the last few years. And any time interest rates move, that has ripple effects through all the other markets as well.

Now, the one good thing, Rob, is it's not all bad news. The one upside of these higher interest rates has been that savers are finally earning decent yields on cash and other safe type holdings. So, you know, other safe haven plays like gold, those have also done very well. But, you know, gold is kind of a good segue into the last point that I'd make on this, which is just that when you have an inflationary environment, the value of real assets, real stuff becomes very, very clear.

And so the value of real stuff, stuff that when you drop it and it lands on your toe, it hurts. The value of that kind of stuff goes up as inflation and prices rise. So commodities, energy stocks, those types of tangible assets, real estate, too, those have all performed very well. And we think that's probably going to continue. We've been emphasizing commodities and precious metals quite a bit more the last few years. We've been slightly pulling back on bonds as such a high allocation.

And those are just some ways to offset the impact of higher inflation and these corresponding higher interest rates. Wow. Really enlightening stuff, as always, Mark. Really appreciate you stopping by today. Thanks for sharing this with us. Thanks, Rob.

Always a pleasure. That's Mark Biller. He's executive editor at Sound Mind Investing. You can check them out and learn more at soundmindinvesting.org. That's soundmindinvesting.org.

We'll be right back. To explore a new way of investing that aligns with your values, more information is available at one ascent dot com. And by clicking analyze my investments, paying too much for health insurance, frustrated by high deductibles and increasing premiums.

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That's CHMinistries.org slash faith. Hey, great to have you with us today on faith and finance here in our final segment. Let's get to as many calls as we can out to Oklahoma. Hi, Keisha. How can I help you? Hi. Thank you for taking my call.

Sure. I have been challenged at our church. It's a small church, less than 100 members finding a good church management software program just to kind of keep track of our members giving, you know, those type of things.

Yeah, very good. Let me throw out a few names that you could maybe use to do your research. The other thing I might offer is if there's some churches in your area that maybe you're just a little bit bigger than you guys are and you feel like are pretty well run.

You could always reach out to their business office and just do some some research that way. There's a lot of options in this space. One that you might look at is called Church Center and it's also called Planning Center and they have different functions. But a lot of churches use Planning Center and Church Center to manage their accounting and coordinate events and communicate with the team and the congregation.

So Planning Center is pretty popular. Another one is called Shelby Systems, S-H-E-L-B-Y, and then I'll mention one called Power Church. Now, in terms of the giving platforms directly, there's three that come to mind there. One is called Push Pay, one word, another called Tithely, it's tithe dot L-Y, and then one more called Secure Give. So I think between those, you should perhaps get going in the right direction. Planning Center and Church Center, Power Church, Shelby Systems, and then Push Pay, Tithely, and Secure Give.

So give those a shot, OK? Great. Thank you so much. All right. Thank you very much.

Appreciate your call. Let's go down to beautiful West Palm Beach. Hi, Pauline. Go ahead. Hi, Ron. How are you? I'm doing great.

Thank you for calling. So I have a 401k. It's not a lot in there, there's like $8,000 in there. I have it from my previous employer. Back in 2022, I had some more money in there and I did borrow like $9,000 out of it as a loan to pay to buy a car for my daughter when she was going off to college. I'm no longer with that employer, you know, since move. So my question is, I am paying back the loan.

I'm paying like $2,000 a month. Do I continue to pay the loan or just not pay the loan back? And I know that they set out to do that 10 percent because I'm not 59 and a half years old. But I have to pay that, they'll put it as income and then I have to pay that penalty 10 percent. So I'm like, it's because it's not like a whole lot, I'm debating or should I just go ahead and just pay it off one lump sum or not pay it off?

And the other question is, should I let it stay with my former employer or should I move it? Yeah. So let's deal with the loan first. Most cases, they expect immediate repayment when you separate from service, when you leave your job or it's a distribution. Are you understanding that they're going to allow you to keep the loan in place even though you're no longer there?

Yes. This is as long as I have over $7,000 in there. Yeah, I could keep it there. OK. Yeah, I do think you want to pay it back. You know, normally you only have five years to pay it back anyway. And again, when you separate, normally you have to do it immediately.

It sounds like that's not the case here. But the idea that you would get that money back in and let it continue to grow. And I would probably recommend that you either roll it to your new employer if you can. And you have a 401k there or roll it to an IRA, because the key is we want to keep it in that tax deferred environment so it can grow for the future.

So that would be my next step. But where would you have to pull those funds from to pay that back if you did so? So, well, from my income, because, yeah, I'm not afraid of 401k, the 403b is what I have there. And then my new employee, with the government, I can't roll it over to them.

OK. So what I'm paying back from my income, you know, from my job, from my paycheck is what I'm using to pay back the loan. I did borrow over the course of time as well. I did borrow like just, you know, withdraw from that 403b like a couple of times, like $5,000 at one point and then $6,000 at another point that I needed.

Or, you know, I had moved and I needed that to help financially. So I did just withdraw that. And I know I paid the 20 percent taxes and they said that I guess at the end of the year I have to pay that 10 percent penalty as well. So that I'm aware of.

Yeah. And so I think for that reason, I would try to avoid doing this. So I just pay it back in whatever ability you have to do that, whether that's over time or, you know, in one lump sum.

But I would make a goal to get that paid back and not take that as an early distribution because with the tax plus the penalty, that's pretty expensive money and it's no longer available to grow for the future. So I think that would be the direction I would head. I'm so glad you got through today. Thanks for being on the program, Pauline. All the best to you. Let's go to Ohio. Hi, Stephanie, how can I help?

Hi, I enjoy your program, Rob. I just had a question. My son is starting college this fall and I wondered, is it wise for us as parents to cosign on Bowdoin for him?

And also, where do you recommend we look for loans with the best interest rates? Yeah, the Bible, you know, really talks against cosigning. It's pretty clear on that one. And it's just generally because, you know, it has the ability to affect the relationship.

The Federal Trade Commission tells us 50% of the time the person who cosigns has to step in. Now, if you said to me, Rob, we're ready, willing and able to step in and pay the loan if our son is unable to and that won't affect the relationship. We're going into it with our eyes wide open. We're glad, you know, we're willing to do that. If that comes down to it, then, you know, certainly that's your decision on whether or not you do that.

And it could improve the terms that you get. I would just probably look for other options if at all possible. And if there's not one or it's just going to end up costing you more, again, I would have clear expectations going into it. You know, clear communication about who's responsible for what and in what timing, whether he has the ability to pay the monthly payments. And if he doesn't, what happens?

And again, as to not damage the relationship that you all are ready, willing and able to step in if he can. Does that make sense though? It does. It does. You know, it's just it's a case where he's starting college without any credit history. So I didn't with that factored into it at all.

Yeah, I mean, it's definitely going to be, you know, it would it would cause his terms to not be as attractive by any means just because he doesn't have the history, the credit score, the income, all of that. In terms of where you might want to go, you could look at NerdWallet. NerdWallet.com. They have the best loan rates every month.

They republish that list. You could do the same at Bankrate. You could also go to LendingTree.com. That would be another Web site that could help you search for who has the best rates. And I think if you do that, plus your own bank or anybody else you already have a relationship with, that'll get you pointed in the right direction. Thank you for your call, Stephanie.

We appreciate you being on. You know, before we go, let me remind you, we trust the Certified Kingdom Advisor designation for biblical financial advice. If you're looking for an advisor that shares your values, that can bring the Council of Scripture to bear in professional financial decision making, you can find a CKA in your city when you go to faithfi.com and click Find a Professional.

Again, that's faithfi.com and click Find a Professional. Well, on behalf of my entire team, Taylor, Jim, and Devin, I'm Rob West. We're so glad you were with us today. I hope you'll come back and join us next time for another edition of Faith and Finance. God bless you. Faith and Finance is provided by Faith Buy and listeners like you.