65% of American Investors Say a Drop in Inflation Would Make Them More Financially Confident. But When Will That Happen?

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  • Inflation has been hammering consumers for well over a year.
  • While there are signs that it's slowing down (including a 0.5% drop from September to October), we're not there yet.

If you're tired of rampant inflation, you're certainly not alone.

It's been a tough year for investors. Not only has the stock market lost a lot of value on a whole, but inflation has been surging, forcing consumers to spend more money on food, shelter, utilities, and just about everything. A Wells Fargo survey notes that investors are changing their habits due to inflation. Many have been cutting back on brokerage account or IRA contributions to cope with higher living costs.

All of this turbulence is causing Americans a lot of uncertainty. A good 66% say they're nervous about their money. But 65% of Americans with money in the stock market say a drop in inflation would make them feel more secure. 

The question is, when will that happen? And when will consumers finally get relief?

Inflation is cooling -- but slowly

In September, the Consumer Price Index (CPI), which measures changes in the cost of consumer goods, rose 8.2% on an annual basis. October's CPI reading wasn't as high -- the index rose 7.7% on an annual basis, which is a reasonable drop. 

But to be clear, 7.7% inflation is still very high. And even if the CPI continues to drop by 0.5% month after month, it will take a while for inflation levels to cool to the point where it actually makes a big difference in living costs. 

In fact, consumers should probably brace for at least a few more months of sky-high expenses, with the hope of maybe seeing more meaningful relief during the second quarter of 2023. But that's just a projection -- it's not a guarantee. And so those who have been struggling financially may need to take steps to buy themselves more financial breathing room until living costs drop. That could mean getting a second job to have an easier time covering bills.

As far as investors go, we can't say when this period of intense stock market volatility will come to an end. Inflation news and stock market movement tend to go hand in hand these days. When there's positive news about inflation, it can send stock values upward. So if inflation slowly but surely starts to cool, it could do the trick of helping to pull the stock market out of its current slump.

On the other hand, many experts are convinced we're in for a recession in 2023. If that happens, it could have a negative effect on stock values.

All we can do is wait

If you're nervous about your finances, you're not alone. And unfortunately, you may, like everyone else, be in a bit of a holding pattern until economic and stock market conditions change for the better.

Your best bet in that case is to prioritize where you put your money. If you can barely cover your bills, you may need to hold off on investing for a while, and that's okay. And if you have money in a brokerage account that's lost value, boost your emergency fund so you're not forced to cash out investments at a loss when a need for money arises.

Ideally, inflation will start to drop significantly at some point in 2023. But that's not guaranteed to happen, so it's best to be prepared.

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