At the grocery store, you’re getting about 11 cents less than you did just a year ago. That dollar cuts 15 cents off utility bills
And it’s worth six cents less on your rent and housing costs. That adds up to a pretty decent amount of change.
This explains why inflation is now a major concern for Americans, as prices rise across the board.
The rate of inflation is as high as it was in the early 1980s. According to the latest report for July from the Bureau of Labor Statistics, it was 8.5% but would have been even higher if not for falling gas prices.
So when will the price hike end? The answer is probably never. But that’s not a bad thing, as long as the increase isn’t too high.
The US is not the only one facing that problem. In every advanced economy in the world, the average annual inflation rate in the first quarter of this year was at least double that of last year.
People around the world are faced with tough decisions about how to stretch their wages. Wages and salaries fell 3.5% last year after adjusting for rising prices.
Why some inflation is good
Inflation doesn’t end, it just gets less bad. And, in fact, we don’t want it to end completely.
The Federal Reserve, the US central bank, is tasked with reducing the rate of inflation through a series of interest rate hikes, targeting around 2%. That means prices will go up even more, not just that.
When people say inflation is down, it doesn’t mean that groceries are getting cheaper. They mean they’re not going too far each month. Entering a period of deflation is very rare, and the government likes to avoid it if possible because it usually indicates that the economy is cooling too fast.
So yes, inflation will continue for a long time, but you won’t notice it much. Between the beginning of 1991 and the end of 2019, year-over-year inflation averaged 2.3% per month. They’re ideal increases, the kind of cost-of-living increases that make “soda only a nickel a day in my day” that only become apparent in the long run.
That doesn’t necessarily mean some prices won’t go down. For example, gas prices have fallen significantly over the past two months. Food prices may also fall. Food and gas prices are more volatile than other expenses because they are affected by supply chain issues and outside factors such as Russia’s war on Ukraine. The Federal Reserve can’t do much to control them, and they tend to swing in either direction.
But for the most part, commodity prices remain high and consumers do not feel relieved until their wages catch up to the new prices. Over the past four decades, there has been no deflation in major commodities other than food and energy, said Wharton finance professor Nick Rusanov. Durable goods And services like cars, appliances, and education rarely go down in price.
The Fed is now trying to shorten the time it takes for wages to catch up with these new prices. The longer it takes for that to happen, the more Americans dip into their savings or take out credit card debt. It’s already happening: In the past year, credit card debt jumped by $100 billion, or 13%, the largest percentage increase in more than 20 years.
Reason for optimism
Inflation cannot continue at its current pace forever. Most economists predict that target rate will drop to 2% by 2024.
So yes, things can be painful, but they don’t have to be To buy a loaf of bread—a wheelbarrow—to bring money Inflationary crises we learned about in history class. Nobody worries about hyperinflation, at least not in the United States.
That’s not to say that high inflation won’t stick around for a while.
Some economists think inflation could remain at a slightly higher 3% to 4% for decades. Boomers are retiring and birth rates are falling. It’s squeezing the labor force, says former UK central banker Charles Goodhart, and we’re entering an era of labor shortages, which means higher prices. Central bankers are heeding the theory. Federal Reserve Bank of San Francisco President Mary Daly has said immigration restrictions may need to be revisited to fix the problem.
Inflation in the US has been chronic in the past: the US economy experienced three recessions in the 1970s, during which the underlying inflationary problem never went away. But monetary policy has changed since then. In the same decade, central banks had multiple objectives: higher output and employment and price stability. Today, the Fed prioritizes price stability over other mandates. That means Fed Chair Jerome Powell has a mandate to raise interest rates until inflation comes down, even if the economy falls with it.
A global crisis
The US is safe from hyperinflation: To be sure, prices have been raised, but not unprecedentedly, and they eased last month.
Still, other countries are suffering. Inflation in Argentina is at a 20-year high of more than 70% and the country’s central bank has raised its key interest rate to 69.5% as it tries to rein in soaring prices. Turkey’s annual inflation rate, meanwhile, hit nearly 80% in June — its highest level in nearly two decades.
Prolonged high prices plunge some countries into periods of instability, which in turn raises food and gas prices globally. They too
The impact will be more severe on developing countries and, according to a UN report, could overturn the progress made in the last decade to fight climate change.