America has recently been feeling the impact of inflation as prices have begun to rise. Inflation occurs when factors such as product needs grow, cost of production increases, and prices of houses rise, making the U.S. dollar lose its value. The cost-push inflation theory centers around the understanding that higher costs are raising prices while the demand-pull inflation theory around the situation deems that inflation is caused by demand surpassing the amount of products that are available to be used. Inflation is calculated by prices in categories such as food and beverages, clothing, and medicine into a unit called the Consumer Price Index (CPI), and the U.S.’s CPI in 2021 has been one of the highest at almost 7%. Learn more about inflation rising below.
Inflation has already happened several times in the U.S. For example, the highest inflation rate ever recorded in the U.S. was in 1778 at 29.78%. The most recent inflation occurrence in the country was the Great Recession in 2008, which was caused by policies that tried to decrease the effects of inflation. In the 21st century, we are paying much more for the same amount back in the day as 2021 prices have shown to be more than 15 times greater than prices in 1921. Even compared to the year before prices have significantly risen with energy prices having increased by 4.6% and food prices having risen 8.3%. The market for used cars have seen the most increase as prices became 29.7% more expensive. In fact, the U.S. has the eighth-highest inflation rate in the world as of the third quarter of 2021.
Seeing how North America has been in the hands of 19 recessions in less than 100 years, the country has created ways to maintain control during runaway inflation, which includes increasing interest rates and decreasing the amount of money being used in the country. Unfortunately, these strategies could lead to issues such as decreased spending power or inducing recessions, though real estate has proven to be effective. Although inflation that has continued for a while can lead to increased interest rates and higher cost of living, it can also come with chances of less unemployment, greater wages, and changes in investment preferences. Nonetheless, one can be ready for the effects of inflation by taking advantage of what’s already available like increasing the amount you invest in retirement contributions and even investing in stocks.
Inflation rising is a concern, but it doesn’t have to leave a dent in your finances.