Thanks to weakening currency due to surges in product demand, higher production costs, supply chain breakdowns, and changing house prices, we are currently experiencing an increase in the price of goods and services. There are two theories around the situation: cost-push inflation (where higher costs raise prices) and demand-pull inflation (where demand outpaces available products). Inflation is measured by the Consumer Price Index (CPI), which monitors a “basket of goods” that includes housing, food, clothing, medicine, and transportation. The Federal Reserve is trying to keep inflation at 2% or less, but rates are rising with 2021 seeing America’s inflation reach 6.8%.
Inflation has existed in American history since 1778 when the highest inflation rate of all time–29.78%–was recorded. The most recent inflation event in the U.S. was the Great Recession in 2008, which was caused by policies attempting to reduce inflation. Unfortunately, 2021 has seen prices become 15.53 times greater than the average prices of 1921 with food prices rising 8.3% and used car prices increasing by 29.7%. In fact, the U.S. has the eight-highest inflation rate in the world as of Q3 2021.
Runaway inflation is controlled through three strategies in the U.S. The first is reducing the amount of money in circulation, the second is decreasing bond prices, and the third is increasing interest rates through the central bank. However, these strategies can lead to unintended consequences, such as inducing recessions, decreasing spending power, and creating job loss.
In less than 100 years, the U.S. has experienced more than 19 recessions. With the current ongoing inflation, people can expect lower savings rates, increased interest rates, and higher cost of living. However, you can protect yourself from the effects of inflation by investing in stocks, increasing your earning potential through education, purchasing property, considering commodities, and raising retirement contributions.
Are you ready to protect your finances from America’s inflation?