Ugly High Inflation Rate of 7.9% Is Not Going Away

Prices so far this year through February were as ugly as could be and have risen 7.9% which is the fastest pace of inflation in 40 years! Even uglier, that doesn’t include the soaring problem with gas and oil prices over the past 10 days because of the insane Ukraine invasion that is in full operation right now as gas prices increased and an array of goods and services became even more expensive.

Money flying away from hand representing high inflation

I hate to say it, but I have to. You need to plan now to deal with inflation and the world turmoil that will affect it by creating a solid financial plan that can help you and your family. We aren’t likely to see any lucky breaks and calm for quite a while. The surging costs for gas, food, and housing right now is only the tip of more inflation and the higher prices to come. Oh, and if you’re looking to buy a new car, this probably won’t be a good time. New car and truck prices posted a record annual gain in February.

The Latest Report

The new Consumer Price Index yesterday, Thursday, March 10th, shows economists that the grim reality facing economic policymakers is worsening. Climbing prices are hitting consumers in the pocketbook more than even last year’s did and it’s causing their confidence to fall by the minute.

Household budgets are being stretched, and even though salaries have increased (which is actually a big deal), money is still tight and even losing ground to the rising prices.

The burden is even bigger on lower-income households who spend a big chunk of their money on basic daily necessities that are rapidly becoming costlier.

Yes, salaries are up about 4.5% which is a 20-year high in growth, but what cost $1.00 last year now costs $1.078 this year, a change of almost 8%.

If You Are Under 50, You Are Probably Shell Shocked

These inflation numbers are the quickest inflation jump in most people’s lifetime. Unfortunately, as a retiree in my 70s I can actually remember the days when inflation was so high you needed both hands and toes to calculated it…and at some point, that wasn’t even enough! So yes, it is bad now, but it can even get worse.

Everyone wants simple answers and solutions and that isn’t likely to happen. If you’re like most people, you want to blame someone and you might hop on the bandwagon and blame your local politician or even the president for inflation, but that isn’t usually an answer to the “why now” scenario.

A perfect storm (or a perfectly imperfect one) has created this ugly mess we call high inflation and just like a balloon that goes up and floats high in the air, it eventually runs out of steam and floats back down to the ground.

Even before the Ukraine invasion further accelerated price increases, robust and out-of-control consumer spending caused by the “resumption of normal behavior” after COVID-19 restrictions were lifted, solid pay raises to attract employees, and terrible supply shortages had sent U.S. consumer inflation to its highest level in four decades. Even worse than that may be housing costs which make up about one third of the government’s consumer price index. They have risen sharply and that is a trend that’s unlikely to reverse anytime soon.

So we are now experiencing the balloon letting the air out of the economy and falling to the ground.

How to Understand Inflation

What is inflation, why is it up, and whom does it hurt? 2,200 Americans were asked the question by the New York Times as to where they most noticed inflation. The answer was in basic necessities, like food and gas. In case you didn’t notice, those are two things that you buy every week. That’s the “what”, but the “why” has a more multi-faceted answer.

The Supply Chain?

You have been hearing lots of chatter about the supply chain factor in rising inflation and its continuing turmoil. That is true, but there is more to that story in my opinion and it has to do with opportunity to make money by many U.S. corporations right now.

Demand is high, supply is low, and the shortest distance between the consumer and the retailer is higher prices. Connecting those dots is very, very profitable. But now companies are continuing to raise prices despite record profits. That is called profiteering. American business is not above doing such things.

The Fed and You

There is also the problem here for the Federal Reserve, which is in charge of achieving price stability. The central bank has signaled it will raise interest rates by a quarter percentage point at its meeting next week. That would be the first hike in years. The increase planned will likely be just the first in a series of moves to increase the cost of borrowing and spending money which is expected to slow down the economy. Interest rates will go up so your credit cards will charge more interest and that may slow down the buying and price hikes.

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How Interest Rate Hikes Will Affect You in 2022

By reducing consumption and slowing the labor market, the Fed thinks it will be able to take some pressure off inflation and over time get back to acceptable levels of about 2% annually. But the flip side of that is that it can damage economic growth and make new problems.

What Economists Fear Most

Senior economists say should gas prices remain near their current levels, inflation could reach as high as 9% in March and/or April, setting more new records. There is no reason to believe that will not happen.

Just look at what is occurring in housing right now. Rent costs are surging at the fastest pace in decades because of steady job growth that is encouraging more people to move into their own apartments and elevating rental costs by the most in over 20 years. Apartment vacancy rates have reached their lowest level since 1984.

Economists are afraid that the soaring energy use in the form of higher gas prices will accelerate inflation and weaken economic growth. That’s because as paychecks are eroded at the gas pump, consumers typically spend less in other ways and that will hurt the economy even if it lowers prices a bit due to declining demand.

Your Plan – Do You Have One?

You are working again, your paycheck is up because you got a raise, and you are vaccinated (or not) but out there mingling again, sounds pretty good. But…you knew there was a but, didn’t you?

Prices are climbing and the future is changing every minute. Peace or war, COVID and/or some other thing is just waiting for you and now inflation is literally out of control and what are you doing? Spending like it’s party time? Well, there may be a party going on, but it may be a “farewell to your money party” if you don’t put some restrictions on that.

Budget yourself, please. Make some real adjustments to your buying and don’t spend just because. These are simple thoughts in a time that doesn’t usually get simple responses. Once again I will say, implore, and even beg you to do what I say over and over again. Be a smart shopper.

(Not so) Final Thoughts

If you are getting tired of posts like this one, chatting inflation and warnings of doomsday, I am sorry to have to do it. I’d rather be writing about wonderful money making subjects and savings that make you feel good and not trying to put a lid on fun and experiences and all that goes with them. But I have been there before and my experience tells me that being forewarned helps. I hope every word of my warning turns out to be strictly a misjudged panic. But I believe it will get worse before it gets better.

That’s the reason I suggest restraint and caution and a good plan to protect your savings and assets. Get ready for 2022 pain in the wallet. 2023 is coming and you will want to party then, won’t you? If you can.

What do you think will happen with inflation in 2022? What are you doing right now when it comes to spending and budgeting? Can you protect your money right now? Will you?

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