What US Consumers Need To Know About Today’s Rising Inflation
Inflation is predicted to remain high this year, with the current administration possibly increasing its 4.7% forecast. Reuters even reports that the Consumer Price Index inflation has been above 8% in the past few months, making this the highest in more than 40 years. Prices of fuel, housing, goods, and services have hit record highs as a result.
With inflation remaining high for the rest of the year, here’s what you need to know and expect as a consumer:
What’s causing today’s inflation?
A big cause of inflation is demand. The World Economic Forum informs that pent-up consumer demand as a result of the pandemic and the Russian invasion of Ukraine are the main drivers of rising prices. Many people amassed savings when they were stuck at home, especially since the government provided financial support for their needs. Now, there is an extraordinary demand as countries emerge from lockdowns as people use this money to purchase goods, causing inflation.
Ukraine is also one of the globe’s largest wheat exporters, so prices of wheat and coarse grains have surged. The invasion also raised oil prices, as the US and other countries imposed sanctions on Russia—one of the biggest oil exporters.
Moreover, because people are starting to buy more goods again, companies have become overwhelmed by the high demand due to there being insufficient goods to meet customer demands. This is because many factories shut down during the pandemic leading to an increased number of shipping backlogs and overall production being reduced. Companies are facing shortages as a result. To compensate, they are charging more for their products.
What to expect
Rent and House Prices
Rent prices tend to go up with inflation as landlords struggle to see a strong return of investment. Analysts from real estate marketplace Dwellsy predict that apartment rent inflation will continue to increase this year by 3.4% while single-family rentals will increase by 35%. Overall the market will become much more expensive and lead to a reduction in renters in prime locations who are priced out of the market. House prices have also seen a massive rise in value. Some reports showed that home prices were hitting new records as they went up 30- to 40% nationally.
Interest Rates
Interest and inflation are closely related. AskMoney states that inflation affects bank interest rates in such a way that they go in opposite directions. When bank interest rates are down, inflation is up. The reason behind this is that people are able to borrow money at a lower rate, resulting in more buying power. Therefore, companies raise their prices with the knowledge and confidence that people will continue to buy their goods.
However, to get inflation under control, the Federal Reserve may raise interest rates this year. When this happens, consumers aren’t able to borrow as much money so they’d rather place funds in savings accounts to take advantage of high interest rates. The result? Companies also lower the prices of goods so that they’re more attractive, therefore keeping inflation at bay.
Gas Prices
Gasoline prices continue to rise, as emphasized in our post ‘U.S. Gasoline Prices Set a New Record Again’. In the last month alone, it has already risen by 4.1%. The average price of a gallon is currently $5.50 in some states like Illinois and Nevada. Meanwhile, in Mendocino, California, one gas station is charging $10. In response, the Organization of the Petroleum Exporting Countries recently announced that it would produce 50% more oil in July and August, so there may be a chance for gas prices to decrease a few weeks from now.
As inflation continues to rise, consumers must be aware of its effects on their purchases. For the most part, this includes changes in interest rates, higher gas prices, and an increase in housing and rental prices.
