Despite the fact that inflation has been subdued (below 3%) for the last two years now, it continues to be a popular topic of conversation and concern.

It’s understandable because compared to the zero-interest-rate-policy era of the 2010s, inflation has felt high, averaging 4.5% for the last five years. But, you may find it surprising that, when we zoom out, this isn’t far from the 3.8% inflation rate we averaged from 1960-2024.

That said, I’m sure that the trend to get our news from "influencers" on social media hasn’t helped our perspective, nor has our personal experience when buying a handful of items that many of us consume on a near-daily basis.

As you can see below, the price increases of at least three grocery staples have been quite dramatic, nearly tripling our general inflation rate (or more) over the last five years.

Because we see and feel these particular increases so frequently, they serve to reinforce the idea that inflation remains out of control. But, taken as a whole, grocery prices have risen in lockstep with general inflation, both up about 25% over the same period. That’s certainly not fun, but I don’t think it’s as out of line as we’ve been led to believe.

I provide this context as a backdrop to share what I’ve found most surprising regarding inflation, and a few other things, over the past year or so.

Back in April, when tariffs were originally rolled out, it was a reasonable economic assumption that inflation would spike again, given that higher producer costs—which tariffs cause—generally result in higher consumer prices since those costs are typically passed along to consumers over time (and/or they reduce profit margins, which we’ll get to in a moment).

Had that spike materialized, it would have been equally reasonable to assume that we’d experience a market decline similar to 2022, during peak inflation.

Well, as you already know, neither of these expectations has come to fruition. At least not so far. Quite to the contrary, inflation has been stable—declining even to 2.7% as of the most recent reading—and the stock market has risen dramatically since the initial tariff announcements.

Beyond that, profit margins, which were also supposed to take a hit, are now at all-time highs, and real GDP growth in the 3^rd quarter (the most recent on record) was 4.4%, which is the highest reading since 2023.

I think it’s fair to say that this combination of events was virtually unfathomable in April, which begs the question: How was this outcome even possible?

Not to shy away from the question, but it’s because the economy and the stock market are far more complicated than people like to think.

Just as inflation doesn’t inevitably result from a single policy decision, the economy and stock market are multivariate as well. Because of this, outcomes that feel inevitable and obvious often fail to materialize—at least not in the way, or on the timeline, we expect.

Beyond embracing the fact that surprising and unexpected outcomes (both good and bad) happen all the time, what else can we take away from this experience? I think we should use it as a reminder of why we build long-term financial strategies for you exclusively in the following fashion:

Your purpose and goals determine the scope and parameters of your plan. Then, what those goals require determines how we build and allocate your portfolio.

Notice that real-time events, headlines, and forecasts are entirely absent from this decision-making process. As they should be.

That’s because your needs and goals, combined with a rational view of history, are far more valuable tools for building an actionable plan for your long-term financial future than headlines and forecasts could ever be.

And, not to be overlooked as part of the process, once this plan is built (assuming your goals don’t change), our job is primarily to help you stand by that plan. Which might help explain why we constantly reiterate our “stay the course” mantra here in these notes. And based on our recent and lifetime experience, why we’ll continue to do so!

If this note raises any questions or concerns, please reach out anytime.