Kovar Capital: Why does everything seem to be more expensive?

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Hi Taylor: It feels like everything is more expensive right now, and I just read something about toilet paper prices going up. Is that true? Sometimes I can’t tell if it’s accurate or just my perception. - Cynthia

Hey Cynthia: Your perception is not wrong, I’m afraid. We’ve seen a lot of price increases over the last year and things haven’t really slowed or reversed. There are multiple factors causing the hikes, so it’s not just one problem that we can quickly identify and fix.

Supply. The entire globe experienced/continues to experience some form of shutdown because of COVID-19. With fewer workers in factories, fewer ships on the water, and fewer customers in stores, the world’s supply chain got thrown out of whack and isn’t anywhere near a full recovery. The thing you read about toilet paper prices going up is a result of rising timber and pulp prices because countries like Brazil and Canada have slowed their production. Materials will start moving more freely in the coming months, but that doesn’t mean prices will necessarily come back down, as we’ll probably see high demand for a few years with the global economy getting back online.

Inflation. This remains the great fear after the U.S. government and so many other countries pumped money into their struggling economies to help people stay afloat. The current prices are definitely more related to supply than inflation, but the two catalysts might start working together this year. The Fed has made it clear this is on his radar, so we’ll have to wait and see what happens with the strength of the dollar and interest rates.

Recovery demand. As I mentioned earlier, demand is going to have a big impact on price. China has resumed a lot of its industries, and that country is a major driver in global supply and pricing. If they’re willing to pay top dollar for wood pulp and other materials, that can affect pricing to the point where you’ll see a slight difference when you check out at the grocery store. This new wave of demand will continue to adjust in the coming months, but I don’t really expect prices will drop back down to where they were. Instead, I think we’re going to see markets, products, and commerce adapting to a post-COVID way of life.

Sorry that these everyday items are hitting your checkbook harder than they used to, Cynthia. For now, the best thing we can do is adjust to our new financial reality and continue putting our money to work as the economy revs its engine.

Disclosure: Information presented is for educational purposes only and is not an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. To submit a question to be answered in this column, please send it via email to Question@GoFarWithKovar.com, or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.

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