Inflation. Nearing a record 40-year record that is hard to ignore. As prices continue to creep upwards, the Federal Reserve has been trying to slow the rise of inflation. What do these numbers mean for you? And what can you do to manage the effects of inflation in your life while the Fed is working to manage it across the nation?
I SPY … INFLATION!
Even if you’re not searching for a brand-new or brand new car, both of which are increasing in cost You’ve likely noticed increased prices in some areas.
The Consumer Price Index (CPI), which tracks the cost of various items and serves as an indicator for how much people are spending their money was 6.8 percent above the November 2020 cost in November 2021.
There was probably a sign of an increase in the price of groceries where food prices have increased by 6.1 percent. With the highest increases for meat, pork chicken, poultry, fish, and seafood, in addition to eggs, I’ll stick to a vegan diet. (The cost of my coffee beans that weigh five pounds has also gone up however, it’s not something I could do without.)
Do you have a favorite food that has comes in new packaging? This could be because due to shrunkflation.
Another popular image? The gasoline pump. With prices for fuel rising nearly 60% higher than last year gasoline is an extremely difficult thing to miss. Electric car is anyone else?
If you’re using gas to heat your home or food, then that Xcel Energy bill has probably also increased. Heating oil for homes is up 59.3 percent.
INFLATION AND THE FED
The Federal Reserve has two major goals “maintain a stable and growing economy through price stability and full employment.” It achieves this by adjusting the rates of interest to manage inflation as well as by purchasing and selling Treasury bonds, each of these has been making news recently.
If you’re a news reader like I do, you’ve likely heard a lot concerning the three rate increases which the Federal Reserve has planned for 2022. Although this won’t directly impact those who live in the same area but the rate they’ll be increasing is the highest rate banks have to pay when borrowing from other banks to fund overnight loans.
The Fed has also announced it will reduce its bond buying. The Fed had been buying more Treasury bonds during the pandemic period to increase the amount of cash flowing into the economy, and to maintain interest rates at a low. When it comes to a close on these bonds purchases, the Federal Reserve will be pumping less money in the economic system.
Injecting less money into the economy, along with rate increases causes interest rates we’ve come to know in the past to increase. Why? The fact that there is less cash in the economy, plus more expensive borrowing costs that cash means the major banks will be able to pass their cost of borrowing to the consumers.
This means that you may see a greater interest rate on your bank account — for instance, that of your savings account that could go back to 0.5 percent. However, it could be less than positive for those who have loans that come with variable interest rates as well as those who are looking to take out loans in the near future.
AN INFLATION … UPSIDE?
Perhaps but not. Inflation certainly isn’t enjoyable. However, it would be a mistake to concentrate solely on the negative, which is things we would like and will cost more to buy.
In the context of the omicron waves of the continuing pandemic, we’ve observed an increase in the economy. This has led to rising wages and a decrease in unemployment. This is a good indication that we’re heading back towards a high point in the economy and away from the possibility of recession.
And I certainly wouldn’t mind seeing a little more interest gained on the emergency/opportunity funds in my high-yield savings account.
If you’re looking for help in navigating the pressures of inflation, contact us. We’re willing to join for an instant web-based meeting to assess the effect of inflation on your budget or revise your budget-planning worksheet to assess how increasing prices for gas, groceries and other utility costs could impact your cash flow plan.
The best methods of (try at) beat inflation is investing in the market for stocks. You’ve probably already heard of it that we could help with this, too.
