The Federal Reserve is expecting inflation to jump over the next few years. While these are only projections, many are concerned about how these increases will affect their finances over the long run.
What's the Status of Inflation Now?
Currently, inflation is hovering around 5.0%. It may not seem like much, but the current inflation rate is well above the highest recorded numbers during the 2008 housing crisis, where inflation was around 3.8%.
Many Americans are pointing to the COVID-19 pandemic as the catalyst for rising prices nationwide. While this is undoubtedly a contributing factor, other economic strains could also be responsible. So, what is inflation exactly, and what causes it? Let's take a look.
Welcome to ECON 101
You've probably heard the term "inflation" in an entry-level economics class or on the news, but what is it? According to Investopedia,
"Inflation is a measure of the rate of rising prices of goods and services in an economy."
Essentially, inflation is like a scale for the rising or falling prices of things that you buy, like food, real estate, and services. Sometimes inflation occurs when there are production cost issues. If an item costs more to make or the workers are expensive to hire, there may be inflation.
For example, there is currently a global computer chip shortage that is raising the price of many electronic services worldwide. Computer chips are vital to most devices we use every day, from cars to cellphones, and as the shortage continues, the price of these items will increase over time.
Another way to understand inflation is through gas prices. Odds are, if you were born anytime after 1970, you've experienced extreme fluctuations in prices. In some cases, foreign oil was more expensive due to political struggles, but other issues like decreasing oil supply can significantly impact the price you pay for gas. Ask your parents and grandparents what they paid for gasoline back in the day, and you'll be surprised at how far prices have come since then.
The Federal Reserve is predicting a tenuous future for the U.S. economy. COVID-19, natural disasters, political upheaval, and unemployment have put the country in a precarious position. The Fed is predicting not one but two interest rate hikes over the course of the next three years.
However, while these predictions paint a problematic future for the economy, the Fed also sees opportunities for optimism. The labor market is projected to heal as the vaccine allows Americans to go back to work.
Consumer goods like groceries and tech devices are steadily increasing in price, but it's important to understand that this inflation probably won't last. The economy is slowly but surely recovering from pandemic-induced crashes, and that recovery is looking up, according to the Fed and the Biden administration.
Why Is This Important?
So, what does inflation have to do with me? Well, the reality of inflation is that it affects everything, including consumers and corporations. No one is immune from the effects of rising prices, so it's crucial to take stock of your finances now to ensure that you are in a good place before prices climb again.
At Buchalter & Pelphrey Attorneys At Law, we offer many services from IRS audits to loan modifications so you can get the legal help you need now. As the economy fluctuates, it is critical to take advantage of the remaining moratoriums and assistance programs available to taxpayers and homeowners.
It's also an excellent time to discuss debt relief options with an experienced legal professional. Inflation rarely does taxpayers any favors, and if you're already struggling with debt and considering bankruptcy, now's the time to discuss your situation with our attorneys.
We can evaluate your case and determine whether bankruptcy is right for you or if you should pursue bankruptcy alternatives.
For more information, contact Buchalter & Pelphrey Attorneys At Law and schedule your free initial case evaluation today.