Back in 2021, inflation hit its highest point in 40 years, with prices rising by about 7 percent in December when compared to the previous year. Experts project that inflation will ease in 2023, but that doesn’t mean the impact won’t remain well beyond when the rates recede. Instead, they’ll affect the lives of many, mainly for the worst. If you’re wondering how inflation is changing lives, and not for the better, here’s what you need to know.
How Inflation is Changing Lives
Inflation typically pushes prices up, including on everyday goods and household staples. While some inflation over time usually isn’t avoidable, extreme increases create substantial financial hardships for many people, particularly lower-income households. Inflation to this degree dramatically reduces buying power and, if you’re already struggling with a tight budget, it may seem like your ability to make ends meets evaporates overnight.
Even middle-income households can feel the pinch. Often, rapid inflation isn’t coupled with corresponding wage growth. As purchasing power falls, households that were once reasonably comfortable can end up on the brink.
Retirees Are Burdened As Well
Retirees are similarly burdened. Since many older Americans live on fixed incomes, falling buying power can be catastrophic, especially if it happens quickly.
In all of those cases, quality of life diminishes. Households have to make tough choices. For example, they may have to decide between buying gas to get to work or getting a critical prescription medication. They might end up debating between buying food and covering an electric bill.
While those examples may seem extreme, they can reflect reality for a surprising number of Americans. Additionally, even if inflation rates fall, prices will remain high if inflation is part of the equation at all. While there may be some balancing, some product may keep their bigger price tags for a while, particularly if companies are trying to recoup lost profits that they experienced due to inflation.
Other Sectors That Are Impacted
There are other sectors that also see the impact of inflation. With rapidly rising home prices, first-time buyers may have a difficult time competing in the market. They may be forced to delay homeownership or might take on loans that stretch their budget too thin.
If borrowers have variable rates on loans or credit cards, the interest they pay may be heading upward. When inflation is running rampant, variable rates usually increase, resulting in larger financing charges.
Ultimately, inflation has a significant impact on most people. And, in most cases, it isn’t for the better.
Should You Worry About Inflation?
Generally speaking, worrying about inflation isn’t going to reap any dividends. However, being aware of its presence and potential impact is wise. By knowing when inflation is having an effect, you can make decisions before your budget is stretched too thin. Thus, giving you the ability to better weather the storm. Additionally, you can look for income-boosting opportunities. This could include a side gig or part-time job, allowing you to increase your earnings to compensate for lower buying power.
Ultimately, inflation won’t remain this high forever. As supply chain issues resolve, wages shift, and other changes occur, the situation usually calms notably, even if it doesn’t go away completely. Ideally, you simply want to adapt as much as possible, ensuring you can preserve your buying power until inflation becomes less of an issue.
Have you or your household been personally impacted by inflation? How did it affect your budget and financial wellbeing? Have you found a way to limit its effect on your finances that you’d like to share? Share your thoughts in the comments below.
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Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.