The US Consumer Price Index rose a staggering 6.8% in 2021. This sharp increase is due to inflation - the increase in the price of goods or services due to weakening currency. Inflation has always affected the country, and the Federal Reserve aims to keep inflation at 2% or less each year, but in the past years, inflation rates have been rising. Why are rates climbing and what can you do to protect your finances?
One of the major theories of inflation is the demand-pull theory. It’s pretty simple - when demand for goods outpaces the availability, prices are forced to go up and cause inflation. With the pandemic spanning across the past two years and millions of Americans being put out of work, there is less production of goods but more demand which has led to the increase in prices.
The other theory behind inflation is the cost-push theory. Higher costs for production raises the overall prices of goods that are being sold. Again looking at the effects of the pandemic, with fewer people working to produce goods, production costs increased and we are seeing the consequences of that with rising prices of all different products.
With the surge in product demand with so many people staying home and the cost of production increasing since there were fewer people producing, America saw the largest inflation rise in more than 30 years. Many people know of the problems with importing goods right now which is causing many supply chain breakdowns, and this also contributes to the higher prices we are seeing across all categories of products and services.
It is important to understand how inflation works so that you can protect your own finances. Consider potentially investing in things like stocks and commodities. Purchasing good rental properties can provide a minimum 10% return on investment. Foods and industrial metals can provide a 7-19% ROI. In terms of personal earnings, continuing your education can increase your total earning potential. 30 million Americans could be earning up to 70% more with a college degree.
Inflation can be triggered by many things. There have been many attempts to solve inflation, but all have been unsuccessful. Rising prices for goods and services are inevitable, it is important that your personal finances are protected when keeping up with these raises. Inflation is inevitable, are you ready to protect your finances?