An Expensive Holiday About to Get Worse

Don’t expect all your gifts on the eight nights of Hanukkah to be of equal value. There also may be a few less gifts from Santa Claus around the tree this Christmas season.

Supply chain issues are still affecting the U.S. and global economy. The only beneficiaries might be Santa’s reindeer, who won’t have to feel the burden of hauling as many gifts as they are used to.

On top of that, while inflation has leveled out a bit, it remains at a 40-year high. That is going to affect how much Americans can buy and how many gifts Santa can bring.

This week, the Fed raised interest rates – but not as high of a percentage as they have been doing throughout the year. In addition, a new report was released this week citing jobless claims are at the lowest they have been since September. Many consumer reports are showing that holiday sales have increased from what they were the past two years.

All of this appears to be good news for our economy. But don’t be fooled. We are not out of the woods just yet.

Take the consumer spending report. The hidden part of the equation here is that when prices are higher, sales are higher. Americans may or may not be buying more goods than they did the previous two holiday seasons. But the fact of the matter remains: the goods they are buying are at much higher prices. That may be what is ultimately increasing holiday sales.

Americans seem to be breathing a sigh of relief that inflation has cooled a bit and that energy prices seem to have stabilized – at least at the gas pump. However, don’t let those “lower” gas prices fool you. One reason why energy prices, particularly fuel for our cars, is not even higher than they could be, is because of the fact that China’s lockdowns persist.

With a population of over 1.4 billion, China is the highest consumer of energy on the planet, and the world’s second largest oil consumer. Yet, for the second full year in a row, their energy consumption is down. This is only due to the fact that they have engaged in perhaps the only “green” energy policy that works: their continuous economic lockdowns. Because of those lockdowns, most Chinese people are not using as much energy, particularly oil.

Imagine what is going to happen when China opens up again. Millions of Chinese people will be back on the roads again. Imagine the pressure that is going to place on the world’s energy supply, including our own. Energy prices are poised to skyrocket.

If you think this holiday season is expensive, just wait until 2023. Remember, energy prices do not just affect the price of gas. They affect the price of everything, including food. As one example, the price of margarine and butter recently spiked by 34%. Maybe this will lead to healthier diets.

All of those consumer goods that we expect to buy for loved ones are also going up this season. Santa has his reindeer, but most of the gifts coming under your tree or around your menorah will require fuel. And what about the baby formula crisis? It may not be making headline news, but it’s a problem that still hasn’t been solved.

There’s a lot of uncertainty of what could happen in the months ahead and that’s why you should be asking your financial advisor the tough questions and not just fixate on headlines in the news.

You have to dig deeper to stay financially prepared for what is coming—holidays that will be more expensive by next year.

How will the continuous Russian invasion of Ukraine affect energy prices, agriculture, and other supply chain issues?

How will the Biden Administration’s energy policies affect America’s energy supply?

How will the likely higher energy demand from China affect the world’s global oil supply and the prices we will have to pay for being more reliant on foreign oil?

Beyond your own consumer spending and what each of us is able to afford to put under the tree or around the menorah, how will all of this affect my investments?