Inflation, one of the biggest risks to the economy, isn’t going away anytime soon. September’s inflation data came out slightly higher than expected — with US consumers up 5.4% in the past year — slightly higher than 5.3% in August.

What’s the big deal? Goldman execs see inflation as the top risk to global economy and markets — with high inflation leading to many problems:

• Lower business earnings, consumer spending and stock prices.
• Lower purchasing power — At a 5.4% inflation and a near-zero bank interest rate, your dollars are worth ~5.4% less each year.

The root of the inflation problem — COVID — which has led to:

• Product shortages from supply chain issues.
• Labor shortage from increased stimulus checks and preference for remote work.

But the biggest problem resulting from high inflation: tapering.

The impact: Higher business costs (i.e. wages, material costs) — which are passed down to consumers. In the next three months, 46% of small businesses plan to raise prices.

Prices have steadily risen in the food, energy and new vehicle categories — with energy prices increasing the most in the past year (24.8% increase).

The million $ question: Is higher inflation temporary or is it here to stay? Fed officials remain adamant inflation is only temporary while company execs see it lasting longer.

• Goldman warned that a potential cold winter could create energy supply shortages and make the problem worse.
• Wells Fargo CEO sees inflation remaining “for a period of time” from hiring challenges and wage increases.

The International Monetary Fund expects inflation to fall back to pre-pandemic levels by 2022 — and if they’re wrong, investors and savers could be paying the price.