Why is Inflation so High?
One of the main reasons behind high inflation is the increase in consumer spending. During the pandemic, many white-collar workers who could work remotely found themselves saving more money by staying at home and spending less. These savings, combined with pandemic relief checks (#stimmy), resulted in an accumulation of around $2.3 trillion in savings for U.S. households, according to the Federal Reserve.
When the world started opening up again, consumers were eager to spend their extra cash but, this surge in demand coincided with significant supply chain issues caused by the pandemic. Global supply chains were disrupted, and manufacturers struggled to get products on shelves at a pre-pandemic rate. Even in December 2022, a survey conducted by the Association of Equipment Manufacturers revealed that 98% of U.S. manufacturing companies were still experiencing supply chain issues.
So Will it Ever Get Better?
The fact of the matter is, there is no straight answer on when prices will go down, but they will go down eventually. Although it’s difficult to provide a clear answer, there are signs that things are slowly getting better. A recent CPI report puts inflation at 4.98%, a decline form the crazy highs seen in 2022. Fuel prices have also started to come back down, and multiple other measures are being taken.
So, final answer: yes, it will get better. When exactly? We’re still not sure. In the meantime, here are some things that can help you stay afloat.
How to Keep Your Finances In Order During Inflation
1. Make a Cash Plan
Make a Cash Plan (fancy way of saying budget)! Now more than ever, it’s important to track your expenses and be more mindful of what exactly you’re spending money on. Your cash plan describes your cash inflows, outflows, and savings/investments every month and will help you be more mindful of your spending.
2. Send Extra Cash to Debts
When inflation is high, interest rates tend to rise right along with it. That’s good news for your savings account, but bad news for your credit cards. That means that paying off credit card debt should be a priority.
3. Increase Your Income If Possible
Consider starting a side hustle to supplement your income! Check out our guide - 5 Side Hustles to Fight Inflation.
4. Keep Your Head Up
We’re all in this together! It can be stressful and overwhelming to live in a time when the cost of living is rising and you don’t know when it’ll go down, but you have to focus on the things you can control, such as paying down your credit card debt and fostering good financial habits.