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What is inflation and how does it affect you? Increase in prices for gas, food, energy raise concern

What is inflation and how does it affect you? Increase in prices for gas, food, energy raise concern


What is inflation and how does it affect you? Increase in prices for gas, food, energy raise concern

Fed to slow economic aid as inflation fears riseThe Federal Reserve will begin dialing back the extraordinary economic aid it’s provided since the pandemic erupted last year, a response to high inflation that now looks likely to persist longer than it did just a few months ago. (Nov. 3)APRapid inflation can be a good thing … when we’re talking about a birthday balloon.But when it’s economics, it’s not great.To be sure, inflation is normal and, to some extent, necessary.A healthy economy typically generates inflation in the range of about 2 percentage points, reflecting increased economic activity stemming from a growing population and productivity gains.But inflation becomes problematic when it begins to outpace the rate of wage gains.That’s exactly what’s happening now, as inflation hit its highest point since 1990.The inverse of inflation is deflation. This is when prices decline. That sounds like a good thing, but it’s often not – because when overall prices decline, it’s often a sign of the economy performing poorly, leading to surpluses of goods and insufficient buying power.►Inflation surges to 31-year high: What the jump in consumer prices means for your pocketbook, Joe Biden’s troubles►Don’t buy these: 4 dangerous retirement money mythsHere are the basic things you need to know about inflation:What does inflation mean and how does it work?Inflation describes the rate of price increases of goods and services.It can come about for many different reasons. Those include product shortages, labor shortages, wage increases, raw material cost hikes, higher demand and policy decisions on issues like interest rates, tariffs and government spending. The U.S. economy is currently grappling with price increases of many different products and services, including new and used cars, gasoline, natural gas, food and apparel.How bad can inflation get?Technically, it’s unlimited.Countries like Zimbabwe have grappled with a crisis of hyperinflation, which involves what the Federal Reserve has called “extreme and uncontrollable.” Zimbabwe’s crisis grew so bad in 2009 that the country issued currency worth 100 trillion local dollars.But that’s not happening here.The worst inflation in recent memory for Americans was in the 1970s and early 1980s, when inflation topped out at 13.5%, according to the Bureau of Labor Statistics.Supply chain shortages are impacting the global market, here’s whySupply chain bottlenecks are creating shortages and price inflation around the world. Biden released a plan that could help ease the jam at LA ports.Just The FAQs, USA TODAYLooking at 10-year periods, something that cost $1 in January 1975 on average cost $2.02 in January 1985, according to the BLS. In contrast, inflation has been largely under control this century. Something that cost $1 in 2011 only costs $1.19 in 2021.Still, such a significant rise in inflation hasn’t occurred since George H.W. Bush was in the White House and “Home Alone” was in theaters. ►Thanksgiving dinner: How are inflation and higher grocery prices affecting your holiday meal?►Wage-price spiral?: Wages are rising, but so are consumer prices. Is this a wage-price spiral?What’s the effect of inflation on my buying power?The greater the rate of inflation, the less your money is worth. In other words, $1,000 stuffed under your mattress is prone to decline in value over time. This is why financial advisers urge people to responsibly invest some of their savings, if possible, to protect themselves against inflation.Wage increases can help make up the difference.In recent months, a number of major American employers have announced wage hikes, including Starbucks, Bank of America, Walmart, Target and CVS. But the rate of inflation is outpacing some of those gains, according to the BLS.What is the consumer price index?The Consumer Price Index, often shortened as CPI, is a figure used to gauge the rate of increasing prices. It’s tantamount to the rate of inflation.The Bureau of Labor Statistics calculates the CPI by assessing the change in price of a variety of goods, including energy, food and cars.You can follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey and subscribe to our free Daily Money newsletter here for personal finance tips and business news every Monday through Friday morning.If you can’t see the form below, click here.

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