Inflation-What Does It Mean For You?

Inflation is a rise in the prices of goods and services over time. In other words, it represents a decrease in the purchasing power of money. Inflation happens when there is more demand for goods and services than there is supply. Prices go up for the very same goods and services you perviously have been purchasing.

Our gas prices are a perfect example...last year it cost me about $22 to buy a tank of gas, and this year it costs me about $40. My tank didn't get bigger or do I drive any differently. That is a perfect example of inflation. And, most of the consumer goods that we purchase are effected by inflation. That is true for our groceries, electric bills, Uber rides, and so on. If you think about it, what do all of those things have in common? They all are dependent on fuel or gas to get the goods to the stores or to your home. Trucks ship goods all over the country, ships and airplanes ship goods all over the world.

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How Is Inflation Slowed Down?

Typically, one of the first things governments will do is raise the interest rates when inflation starts to get out of control. Basically, the Fed policymakers aim to make borrowing more expensive so that consumers and businesses hold off on making any investments, thereby cooling off demand and hopefully holding down prices. The Fed will raise interest rates to reduce inflation and hopefully decrease costs to spur economic growth. Home prices, for example might go down a bit, and then the interest you pay on your loan probably will be higher. Hopefully you will be able to claim your interest expense as a deduction on your taxes.

What Causes Inflation?

So why is inflation happening now? Many experts believe it’s a combination of both cost and demand. The COVID-19 pandemic has led to increased demand for certain products as people stocked up on essentials. At the same time, businesses’ costs have gone up as they struggle to keep up with demand.

Inflation can also be caused by increases in the cost of production, such as higher wages. In 2022, there are several reasons why inflation is happening. The main reason is that oil prices have surged since the Russian invasion of Ukraine.

Are There Any Benefits To Inflation?

Inflation can be a good thing or a bad thing depending on how it is happening and what is causing it. In general, inflation is bad for consumers because it means that their purchasing power decreases as prices go up. However, if wages are growing at the same time as costs, then workers will still be able to afford the same standard of living. Having a job during times of inflation seems to be a smart thing to have...

During Inflation, many retirees that have their money in the bank, earning next to nothing in interest, may benefit when interest rates are raised. The rate hikes will often be reflected in bank savings accounts, money market accounts and CDs. That is good for many of our older family members and friends that do not have their money in a more lucrative account.