Why is Inflation so High?

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<a href="https://www.expensivity.com/wp-content/uploads/2021/12/inflation.png" alt="Why is Inflation so High?" width="100%" border="0" /></a><br />Source: <a href="https://www.expensivity.com">Expensivity</a><br />

The US Consumer Price Index rose 6.8% in 2021

Inflation At A Glance

An Increase In The Price of Goods or Services Due To Weakening Currency

Caused by:
- Surge in product demand
- Production cost increases
- Supply chain breakdowns
- Changing house prices

Two Major Theories
- Cost-Push Inflation
  - Higher costs raise prices
- Demand-Pull Inflation
  - Demand outpaces available products

Inflation is Measured by the Consumer Price Index (CPI)
- Monitors a ‘basket of goods’
  - Housing
  - Food & beverage
  - Clothing
  - Education
  - Medicine
  - Recreation
  - Transportation
  - Miscellaneous

The Federal Reserve Aims To Keep Inflation at 2% or Less
- But rates are starting to rise
  - 2019: 2.3%
  - 2020: 1.4%
  - 2021: 6.8%

Inflation rates are higher than ever, with the biggest jump in more than 30 years

What is inflation? Check out our Glossary!

A Brief History Of American Inflation

1778: Highest inflation rate of all time
- 29.78% according to cultural data
1913: Federal Reserve signed into law
- Money backed by gold standard
1919: CPI compiled for the first time
- Collected as weighted average prices
1965 to 1982: The Great Stagflation
- Inflation rose more than 14% at its peak
2008: The Great Recession
- Caused by policies attempting to reduce inflation

2021 prices are 15.53 times higher than the average prices of 1921

We Are Paying More For The Same Amount

Compared To Last Year, Prices Rose:
- Used cars 29.7%
- Food 8.3%
- Healthcare 6%
- Clothing 5.6%
- Energy 4.6%

America has the eighth-highest inflation rate in the world as of Q3 2021

How The US Controls Runaway Inflation

Three Strategies
- Reduce the amount of money in circulation
- Decrease bond prices
- Increase interest rates through the central bank

But these sometimes have unintended consequences
- Induce recessions
- Decrease spending power
- Create job loss

The United States Has Experienced More Than 19 Recessions In Less Than 100 Years

What To Expect From Ongoing Inflation

Higher cost of living
- US hourly earnings are down 1.1% in 2021
Higher wages
- Average hourly ages rose 5.1% in 2021
Lower unemployment rate
- Unemployment dropped to 4.2% in November 2021
Cost of Living Adjustments (COLA)
- Social security will rise 5.9% in 2022 to combat growing cost of living
Increased interest rates
- The Fed’s New Dot charts suggest a hike of 3% by 2024
Lower savings rates
- Average rates range between 0.01% APY to 0.10% APY, far below inflation
Changed investment preferences
- Since Q2 2021, S&P 500 earnings rose 6% to $39.86

“Inflation came in various forms—sometimes led by wages, sometimes by prices, by foods, by oil; sometimes it was domestic and sometimes imported. Many programs have been launched to stop it—without durable success. Inflation seemed a Hydra-headed monster, growing two new heads each time one was cut off.” – Herbert Stein, Presidential economist

Protecting Yourself From The Effects Of Inflation

Invest in stocks
- (not financial advice)
Purchase some property
- Good rental property provides a minimum 10% ROI
Increase your earning potential through education
- 30 million Americans could be earning 70% more
Consider commodities
- Foods and industrial metals 7% to 19% ROI
Raise retirement contributions
- Increase your total amount invested by 1% each year

Inflation is coming. Are you ready to protect your finances?