In March 2022, the Consumer Price Index for All Urban Consumers (CPI-U), the most common measure of inflation, rose at an annual rate of 8.5%, the highest level since December 1981. ¹  It's not surprising that a Gallup poll at the end of March found that one out of six Americans considers inflation to be the most important problem facing the United States. ² 

Hot Economy Meets Russia and China
The fundamental cause of rising inflation continues to be the growing pains of a rapidly opening economy — a combination of pent-up consumer demand, supply-chain slowdowns, and not enough workers to fill open jobs. Loose Federal Reserve monetary policies and billions of dollars in government stimulus helped prevent a deeper recession but added fuel to the fire when the economy reopened.

The Russian invasion of Ukraine placed additional upward pressure on already high global fuel and food prices. ³  At the same time, a COVID resurgence in China led to strict lockdowns that closed factories and tightened already struggling supply chains for Chinese goods. The volume of cargo handled by the port of Shanghai, the world's busiest port, dropped by an estimated 40% in early April. ⁴

Core inflation, which strips out volatile food and energy prices, rose 6.5% year-over-year in March, the highest rate since 1982. However, it's important that our AutoZone clients consider that the month-over-month increase from February to March was just 0.3%, the slowest pace in six months. Another positive sign was the price of used cars and trucks, which rose more than 35% over the last 12 months (a prime driver of general inflation) but dropped 3.8% in March. ⁸

One of the central questions at the time was whether rising wages would enable consumers to continue to pay higher prices, which can lead to an inflationary spiral of ever-increasing wages and prices. Signals were mixed: consumer spending rose 1.1% in March 2022, but an early April 2022 poll found that two out of three Americans had already cut back on spending due to inflation. ^10-11

Soft or Hard Landing?
The inflationary situation raised many questions about the path forward. The Federal Open Market Committee (FOMC) of the Federal Reserve laid out a plan to fight inflation by raising interest rates and tightening the money supply. After dropping the benchmark federal funds rate to near zero to stimulate the economy at the onset of the pandemic, the FOMC raised the rate by 0.25% at its March 2022 meeting and projected the equivalent of six more quarter-percent increases by the end of 2022 and three or four more in 2023. ¹²  That path was projected to bring the rate to around 2.75%, just above what the FOMC considered a 'neutral rate' that would neither stimulate nor restrain the economy. ¹³

That same shift from growing assets to drawing them down applies directly to the pension decisions in front of you at AutoZone. Without a traditional pension, your 401(k) - alongside Social Security - forms the foundation of your retirement income at AutoZone. AutoZone may offer a 401(k) employer match - review your Summary Plan Description for current match rate and vesting details. Your overall withdrawal strategy, account sequence, and Roth conversion opportunities leading up to and into retirement deserve careful, personalized analysis given the income-sequencing implications.

On the healthcare side, AutoZone does not offer continued medical coverage to retirees, which means coverage through the company ends when employment does. Planning for the cost of health insurance during any gap between your retirement date and Medicare eligibility at age 65 is a critical step - marketplace coverage, COBRA continuation, or a spouse's employer plan are common options. Building an accurate estimate of bridge-coverage costs into your retirement income projection prevents underestimating one of the largest variable expenses retirees face. Connecting your specific AutoZone benefits situation to a comprehensive retirement income plan - and understanding how each component interacts - gives you the most complete picture of what retirement will look like.

Those rate increases successfully brought the Fed's preferred measure of inflation, the Personal Consumption Expenditures (PCE) Price Index, down toward the Fed's 2% target -- a gradual disinflation that played out through 2023 and 2024. ¹⁴  PCE inflation -- which had reached 6.6% in March 2022 -- tends to run below CPI; as the Fed's tightening took hold, both measures declined meaningfully through 2023 and 2024. ¹⁵

The FOMC went on to raise the fund's rate by 0.5% at its May 2022 meeting -- the first half-percent increase since May 2000 -- and continued hiking aggressively through 2022 and into 2023. The FOMC also reduced the Fed's bond holdings to tighten the money supply. ¹⁶