Inflation is Still Lingering

What it Mean for Your Investments in 2025

As we move further into 2025, inflation continues to be a lingering factor influencing the economy and investment landscapes. Although the extreme price spikes of the past few years have moderated, the effects of persistent inflation are still being felt by consumers and investors alike.

Understanding how inflation impacts your investments is crucial for making informed financial decisions. In this article, we explore why inflation is sticking around, its effects on different asset classes, and strategies you can use to navigate this ongoing economic challenge.

Inflation rates have shown some moderation but remain above historical averages, affecting both consumer behavior and investor sentiment. According to recent reports:

• Consumer Price Index (CPI): The latest February 2025 data show an increase of 0.5% in January with the year-over-year increase of 3%, reflecting continued pressure on consumer prices. ¹
• Interest Rates: Central banks are maintaining a cautious approach, with interest rates at 4.5% to balance inflation control and economic growth. ²
• Labor Market: Wage growth is stronger than expected, contributing to higher consumer spending and influencing inflation trends. ³
• Energy Prices: Although energy prices have fluctuated, they continue to play a significant role in inflation dynamics. ¹

Economists predict that inflation with persist throughout 2025, albeit at a slower pace compared to the peaks seen in previous years. Investors should be prepared for ongoing market volatility as economic policies and geopolitical factors continue to shape the landscape. ⁴

Several key factors contribute to the persistence of inflation:

• Labor Market Pressures: Wage growth remains robust, This drives companies to compete for talent, pushing up costs that are often passed on to consumers. ³
• Supply Chain Adjustments: Although global supply chains are stabilizing, elevated costs for raw materials and logistics continue to influence prices.
• Energy Prices: Ongoing fluctuations in energy costs impact transportation and manufacturing expenses, contributing to price volatility across many sectors.

These factors, combined with geopolitical uncertainties and evolving consumer behaviors, make inflation a persistent issue rather than a short-term fluctuation.

Inflation affects various investment types in different ways. Here’s how:

1. Stock Market Volatility
   Companies facing rising input costs may see shrinking profit margins, impacting stock prices. However, businesses with strong pricing power and essential goods or services often perform better during inflationary periods.
2. Bond Yields and Prices
   To combat inflation, central banks typically raise interest rates, leading to higher bond yields. However, this can also decrease the market value of existing bonds, making them less attractive to investors.
3. Real Estate and Commodities
   Real estate and commodities are often seen as effective hedges against inflation. Real estate can provide rental income that adjusts with inflation, while commodities like gold tend to retain value as currency devalues.
4. Cash and Savings
   Inflation erodes purchasing power over time, meaning the cash sitting in savings accounts could lose value in real terms. High-yield savings accounts or short-term bonds might offer some protection, but typically at lower returns compared to other asset classes.

“Inflation is proving to be more persistent than many anticipated. However, it’s not just about surviving inflation; it’s about strategically navigating it. Investors who focus on diversified portfolios and inflation-resilient assets are better positioned to protect their wealth and capitalize on new opportunities.”
— Chris McMahon, CEO at Aquinas Wealth Management

To handle this type of uncertainty and market volatility, it’s important to stay proactive and adaptable in the face of ongoing inflationary pressures.

Here are some strategic ways to protect and grow your investments amidst lingering inflation:

1 – Diversify Your Portfolio

Diversification remains one of the most effective ways to manage risk. By spreading your investments across multiple asset classes—like stocks, bonds, real estate, and commodities—you can reduce the impact of inflation on your overall portfolio

2 – Consider Investing in Inflation-Resilient Sectors

Certain sectors tend to perform well during inflationary periods, including:

• • Consumer Staples: Companies that produce essential goods (food, household products) are better positioned to pass on cost increases.
  • Energy: Fluctuations in energy prices can be advantageous for energy producers.
  • Real Estate: Real estate investments can provide rental income that adjusts with inflation, protecting purchasing power.

3 – Regular Portfolio Rebalancing

In times of economic uncertainty, it’s essential to regularly review and rebalance your portfolio. This ensures your investment strategy remains aligned with your financial goals, risk tolerance, and changing market conditions.

While inflation is expected to moderate further, it may not return to pre-pandemic levels anytime soon. Central banks worldwide continue to grapple with balancing interest rate hikes and supporting economic growth.

Investors should be prepared for ongoing market volatility and consider strategic adjustments to navigate this evolving landscape.

Lingering inflation presents challenges, but it also offers opportunities for savvy investors. By understanding its impact and strategically diversifying your investments, you can protect your wealth and even find growth opportunities in an inflationary environment.

Our team at Aquinas Wealth is here to help you navigate this complex economic environment with confidence. We specialize in aligning your financial goals with strategic investment solutions tailored to your needs while staying true to your catholic values.

Contact us today to learn how we can help you protect and grow your wealth, even as inflation continues to linger.