3 Reasons Why Inflation Is Still A Problem — And How You Can Protect Your Wallet

The neverending social media jokes about the cost of eggs have us all crying…and not just tears of laughter. You probably have already noticed that inflation (the general increase in the cost of everyday items) leads to a gradual decrease in your money’s purchasing power. So it’s no surprise that the rise in prices has many Americans wondering when (and if) prices will go down. 

So…when will inflation go down?

It’s complicated. While some economists say we can expect some relief from inflation in 2024, others maintain we don’t have enough data to know for sure. What we do know is where inflation goes from here depends on a few different factors. Here’s a closer look at what’s really impacting our prices:

Economic recovery

When the economy starts to pick back up after a major downturn (like a global pandemic), prices rise. Plus, when people have more money, whether it’s from a raise or a stimulus check (which many Americans received in 2021), they are more willing to spend. That combo usually prompts corporations to raise prices. So as the economy bounces back, dollars don’t stretch as far. In order for everyday prices to get back to normal, an adjustment in supply and demand would need to happen.

Supply chain disruptions

Producing goods is a process. And if it breaks down anywhere along the line, it can impact how much of a product is available to the public. That can happen when there’s an internal interruption (like a shortage of workers) or an external interruption (like a major storm that prevents a company from being able to distribute its goods). Both types of interruptions have happened since the pandemic began. As the production process gets back to the norm, we could see at least a small price improvement. 

War

A major man-made global disruption. Over a year after Russia’s invasion of Ukraine, the war is still impacting global inflation. Reduced grain and fertilizer availability (both countries are major producers) are keeping food prices at an all-time high in the US.

What’s the federal government doing to help lower prices?

Working on long-term solutions. With the Fed, that looks like interest rate hikes. Here’s the idea: When interest rates increase, consumers usually cut back on spending. That means demand decreases, and prices fall. 

With the Biden admin, it looks like the Inflation Reduction Act. President Biden signed it into law in August 2022, but none of us felt changes overnight. That’s because it addresses the major factors impacting prices, and those factors can’t be fixed overnight. But it seems to slowly be on track. One example: Starting in February 2023, the law covered the costs of land conservation for thousands of farmers and ranchers throughout the US. The investment will help landowners preserve their crops, which means more food and less reliance on other countries for supply. Much-needed help that could help hit pause on food costs. Eventually. 

Is there anything I can do about inflation?

Watch out for it. Inflation can show up in several (sometimes sneaky) ways. And protect your budget. A few ideas:

Comparison-shop

When prices start going up — or stay up for a long time, it’s important to pay close attention to what you’re buying. If there’s a cheaper option, try swapping out your usual. Your savings account will thank you for it.

Cut your spending

If there are no easy swaps for the products you need, try looking for other ways to cut back so your budget isn’t stretched too thin. Look at all your regular monthly expenses to see what you can live without, downgrade, or negotiate.

Invest

A well-diversified portfolio could help you earn enough to beat inflation. Just don’t make any sudden moves. Take this time to assess whether you’re comfy with your asset allocation for the long term. If not, it’s time to adjust your strategy to match your risk tolerance.

theSkimm

Inflation is still impacting Americans across the board. Which could mean big changes for your budget. But understanding the potential impact (and the why behind it all) can help you make smart money moves to deal with inflation.

*Updated on March 22, 2023 to include the latest information.*