Inflation is a word that has gained much attention over the past few years, thanks in large part to the pandemic and the lack of concern from the Federal Reserve.
In 2021, it became one of the lead talking points of the virus’s effects, along with one of the primary catalysts that could lead us into a recession into the new year.
Many had hoped that there would be a new focus for our economy; unfortunately, it doesn’t seem like inflation is going away anytime soon.
Last year, the Consumer Price Index, or CPI, which measures a specific predetermined basket of goods, rose to levels not experienced in nearly 40 years, since 1982.
Across the previous 12 months, and ending in November 2021, the CPI increased at an alarming rate of 6.81% compared to what the Fed considers a healthy rate of 2.0%.
While this news rightfully made headlines, many believe that the real CPI numbers soared even higher than this, masking the American people from the truth.
According to Bloomberg, economists continue to increase their expectations for US inflation.
While skepticism is high, so has everything else along with the Producer Price Index, or PPI.
Forbes outlines how the inflation rate for producers is much higher than that for consumers.
The PPI measures the specific inflation rate for producers.
Traditionally, PPI tends to be below CPI, and for the past ten years, the CPI has been higher than the PPI 60% of the time.
However, that has not been the case for over a year now. Essentially, production costs for products and goods are rising at a much faster rate than consumer prices are.
This is something we have all experienced before… When a company experiences rate increases, they usually pass those costs down to their customers by increasing the price of their goods or services.
Of course, the other alternative is for the company to absorb the additional costs to produce the goods or services; however, that’s a decision we see less of since it directly affects their bottom line profits.
So, why isn’t inflation going away anytime soon?
Supply chain issues are said to be in large part the biggest threat and reason to blame for the inflation surge.
The consumer demand is undoubtedly there; unfortunately, so are the significant bottlenecks at U.S ports where products sit idly on either ships in the harbor or in storage containers on the port waiting to be unloaded.
With a shortage of workers leads to a shortage of products.
Nick Bunker, economic research director at job placement site Indeed, told CNBC:
“The labor market is still recovering, but a more sustainable comeback is only possible in a post-pandemic environment.”
The constant pivoting and neverending uncertainty as so many of us are living through can only go so far as we allow.
The Federal Reserve may have its hands tied behind its backs, but it doesn’t mean we’re left with the same option.
A note to all is to prepare the best we can while we let time run its course.
What have you done to prepare for higher inflation?
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