If you’ve paid more for the products and services you buy regularly, you’re not alone: ​​Bankrate survey data shows 90% of adults felt the effects of rising prices during the year elapsed. However, these increases shouldn’t come as a major shock. The pandemic has turned everything upside down and your wallet has not been spared from the impact.

Today the world is grappling with the question facing all economists: How long will this rate of inflation last?

Overview of discount rates

We may be looking at an inflation rate of between 2-3% instead of the lower 2% range we were used to in the decade leading up to the pandemic.

Transient inflation vs traditional inflation

It is important to understand that inflation is not a new phenomenon. Traditionally, year-over-year prices have increased by 1-2%.

Today, however, the conversation about inflation has changed to include a word that has dominated the American lexicon, thanks to Federal Reserve Chairman Jerome Powell: transient. This is the Fed’s term for temporary. Initially, it was believed that inflationary pressures would be a relatively short-lived consequence, as the economy recovered after shelter-in-place orders and closures.

More recently, the debate has shifted, with the general public wanting a forecast of the length of this “transitional” period. One year? Two years? Even the Federal Reserve has acknowledged that inflation is higher than expected and could stay elevated longer than expected.

What causes higher inflation?

All over the world, supply chains have become hampered, leading to price increases on a wide range of scarce products – the paint needed for a new coat of color in the home, the semiconductors needed to make cars, pork was to be served on the dining room tables. , to only cite a few.

In addition to a shortage of products, there is a shortage of people to provide services. The job market is recalibrating as employers need to redouble their efforts to attract talent. With nearly 11 million jobs open, many companies are increasing wages in order to retain current employees and fill vacant positions. These higher costs for workers ultimately end up with end customers, resulting in higher prices. And for these workers, higher wages are good news, but only if they can exceed the higher household expenses they face.

While the supply chain is broken, the appetite for consumption is quite healthy. There is an unprecedented level of pent-up demand among consumers who are ready to enjoy life after foreclosure. Oil prices have skyrocketed as the global economy rebounded, leading to higher gas prices and a forecast for higher home heating costs this winter.

How long will inflation last?

In recent months, there has been evidence to support the Fed’s transitional thesis. Prices for used cars, lumber, plane tickets, and hotel accommodation expenses – all of which had risen as demand exceeded limited capacity – began to calm down.

However, other evidence in the economy shows that price pressures are a bigger story with no sign of a clear closing chapter. The single most important item in a household budget – the monthly cost of the actual house – faces serious pressure from soaring house prices and rising rents. Data from apartment rental site Zumper shows that median rental prices for two-bedroom apartments have increased by more than 13% in the past 18 months. Anyone looking to buy a home or renew a lease faces serious headwinds that don’t seem likely to dissipate anytime soon.

So when will all of this be over? No one can be sure. Even after the dust settles, we can envision an inflation rate of between 2-3% instead of the less than 2% range we were used to in the decade leading up to the pandemic.

What can you do to protect yourself from inflation problems?

You don’t have much to say about how the economy as a whole is going. After all, you won’t be able to find more sea containers to move world trade forward. However, there are ways to plan ahead to protect your personal finances:

  • If you are a homeowner, take advantage of refinancing your mortgage: Although they find themselves in a record high rate environment, nearly 75% of homeowners have not refinanced their mortgage. If you have great credit, you may be able to reduce your monthly mortgage payment by a few hundred dollars a month. It frees up precious space in your budget at a time when the cost of so many other products is on the rise.
  • Be an informed buyer: Thrifty, economical, frugal – whatever you call it, it’s worth focusing on every price tag. Take advantage of sales announcements in your supermarket or search for coupons on the household items you need. Plus, make sure you are part of the free loyalty programs. These exclusive discounts and extra points can be another way to save.
  • Focus on what you control: While you can’t dictate the price at the gas pump, you can think of ways to reduce the amount of driving you have to do. And when you are at home, you have the steering wheel for the thermostat.
  • Don’t reinvent your approach to investing: Headlines on inflation can paint a scary picture, but that doesn’t mean you have to lose sleep and completely adjust your approach to managing money, especially when it comes to your investments. If you have a well-diversified portfolio, you already have a healthy allocation to inflation-resistant investments such as stocks and real estate.

Leave a Reply

Your email address will not be published.