Inflation Rates Higher Than Expected

Inflation eased again in January coming in at 3.1% as compared to the prior year. This was down from December’s CPI increase of 3.4%.

The problem is that most economists had expected the number to ease under 3% to 2.9%. This threw the markets into a panic, with equity markets dropping between one and two percentage points with the 10 year Treasury Note trading above 4.3% for the first time since last November.

The question becomes when will the Fed begin easing interest rates now that inflation has become more stubborn than predicted?

Many had originally predicted that the rates would begin easing in March. Then with the inflation news we received at the end of last year, most backed that prediction up to May.

Now it could become mid-summer or fall.

Let me leave you with this.

There’s two takeaways from this to be understood.

Higher For Longer

Interest rates won’t be coming down to something more affordable for a while. The Fed needs to get inflation under control. That’s why they began increasing interest rates in the first place.

But there’s much more to this than that.

Back in the 1970’s we had an economic cycle where the Fed dropped their interest rates too soon, and inflation ran back up. This forced the Fed to re-raise interest rates.

The Yoyo effect that then occurred was horrible for the economy. The Fed is simply doing what’s best for everyone.

The worry is that they’ll leave interest rates at their higher point for too long which might push us into a recession. Exactly what will happen? No one knows. But one thing is certain.

If you were waiting for interest rates to go down before your next project, you’re going to be waiting a while longer. Be patient. It will happen.

Interest rates will ease, just not as quickly as many had predicted.

Inflation’s Overall Effect

We’ve seen an average inflation rate since January of 2020 to the present report of 19.55%. This means that if you’ve had only average price increases on your inputs since 2020, and haven’t raised your prices by 19.56% or more, then you’re behind.

And the person paying for it is you. Your suppliers are getting paid, as are your employees and the government.

The only person paying this bill is you, and that’s only if everything is at an average. If any of your major inputs increased more than that, then the negative effects you’ll feel will be more as well.

I’m sitting here doing income tax returns for my 280 corporations and partnerships, everyday seeing the results. Entrepreneurs who took this seriously and maintained their margins are still making the money that I expect to see.

Those who didn’t, aren’t.

No one likes talking about raising their prices. It isn’t a good time on a Saturday night. But that’s the job. That’s what you signed on for.

If you can’t raise your prices, given competitive forces, it’s one thing. If you can and haven’t, it’s another thing altogether.

Think about it and do what’s necessary.

We’re all going to get through this. Let’s get through it together.

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Sincerely yours,

Chris Amundson


Accounting Solutions Ltd.



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