Inflation: The Cash-Eating Cookie Monster

February 14, 2022

I think of inflation as the Cookie Monster of money. It eats away at one’s cash little by little.

And sometimes… by a lot

Inflation, simply stated, is when prices go up and the purchasing power of money goes down. There are debates over how one should measure inflation and the methodologies behind various ways of doing so through the years, but one common reading is the consumer price index (CPI). Since the Corona Crash of early 2020 this has risen dramatically.

What does this mean for your money? It means that you are spending a lot more at the pump and at the grocery store among other things. It also means that your savings accounts are worth less to you than they were a year ago.

So how might one invest to beat inflation? There is research on what sectors of the market might do better in an inflationary environment, but Warren Buffett has some helpful advice at the macro level.

First, invest in yourself to increase your earnings power. Second, invest in a good company so that its earnings power benefits you. Both could be just the one-two-punch in the face to inflation you need.

Some of you are thinking, “Wait a minute, Sport. I’m retired. My earning days are done.”

Well, in that case option two, is worth consideration. A common way to achieve might be to invest some of your money in the indexes of the stock market so you don’t have to pick and choose which company could have the best earnings in the coming years, but get diversified across them all.

Inflation is scary. And when we get afraid, we like to hide. In the case of money, this can result in hoarding as much money as possible and stashing it away. The problem with this instinct is that the Inflation Cookie Monster loves devouring the current income on cash that exists in our low interest rate world.

One thing is for sure, a savings account doesn’t work too well to beat inflation. According to JP Morgan research as of January 31, 2022, a savings account of $100,000 is going to earn you approximately $70 bucks, while the income needed to beat inflation is $5,490.1

Every person has different goals, objectives, and needs, but the Oracle of Omaha’s advice is a reasonable start. Invest where earnings can increase: 1) you or 2) others via their companies.

The reality is: the Cookie Monster has come and he’s hungrier than he used to be. Whether his appetite increases or decreases this year, no one knows for sure, but hiding your cash in the jar of a savings account over the long term may not be the safest spot.

Oh great, now I want a snickerdoodle.



1. “Guide to the Markets”, p. 65.