Is Inflation Here to Stay?

Q: These days, I feel like I need to take out a second mortgage just to fill up on gas and restock the pantry. Is this price inflation here to stay?

A: According to the most recent report by the Bureau of Labor Statistics, U.S. inflation is currently running at a 13-year high of 5.4% — and it’s showing no signs of slowing down. Here’s what you need to know about the U.S. economy and what you can expect in the coming months.

Inflation is not going anywhere soon

The rising prices currently happening in just about every sector is hardly surprising news at this point. The inflation rate fell at the start of the coronavirus pandemic as people hunkered down at home. In March 2021, though, when the impact of halted manufacturing began hitting the market and crude oil prices started climbing, the inflation rate increased to 2.6%, hitting its current high of 5.4% in June and July. While the rate started falling in August to 5.3%, it then climbed right back up to 5.4% in September. Experts like the Trading Economics information technology company now expect that number to continue rising, likely hitting 5.5% in the coming months.

Unfortunately for the average consumer who’s struggling to cover expenses amid rising costs, this means inflation isn’t going anywhere soon.

Why are prices so high?

There are several factors contributing to the inflation bubble, most of which can be directly linked to the coronavirus pandemic.

First, factory shutdowns at the start of the pandemic have suppliers still trying to catch up on production shortages that resulted. Supply chain disruptions affect more than just consumers. Lots of manufacturers, like automakers, depend on other suppliers for the materials they need to continue production, further limiting supply. As always, a dearth in supply brings prices up.

Second, climate change is responsible for driving up prices, particularly in the food industry. Wildfires that devastated close to 2.5 million acres in California, a record-breaking drought in Brazil that came on the heels of a severe frost, and dry weather in the Dakotas have all contributed to rising prices for commodities like sugar, soy, coffee, and more. This, in turn, forces restaurants and fast-food chains to increase their prices as well.

Another factor contributing to rising prices is the demand for higher wages across the nation. With 10.4 million job openings in the U.S., competent workers know they are highly valuable to their employers. The rising cost of living also means employees need a higher salary just to survive. Of course, businesses need to pass on this rising cost to their customers and clients.

Finally, as always, the price of fuel impacts every part of the economy. With gas and crude oil prices trending upward, the cost of everyday goods, luxuries, and shipping will continue to rise.

What can consumers expect in 2022?

Shoppers are learning how to deal with the higher prices at the pump and from store shelves. Some are trimming their budgets while others are looking for additional income streams to help them get by. But there are many who are finding it challenging to survive in today’s economy while hoping for better news next year.

No one can accurately predict the future, but economists are expecting inflation levels to taper off by the middle of 2022. According to a survey conducted by the Wall Street Journal, many are even expecting inflation to drop to 3.4% by June 2022, and then continue falling until it hits 1.8% by the year’s end.

It isn’t easy to stick to your budget and savings goals with rising prices at every turn. Hopefully, though, the coming year will bring better news for the economy.

Your Turn: How are you dealing with the inflation bubble? Share your tips with us in the comments.

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Sources:

https://www.washingtonpost.com/business/2021/10/15/us-economy-inflation-uncomfortable/

https://tradingeconomics.com/united-states/inflation-cpi

https://www.forbes.com/advisor/investing/why-is-inflation-rising-right-now/

https://www.cnn.com/2021/08/13/business/food-prices-inflation-climate-change/index.html