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Understanding 2022 Inflation - The Numbers and How They Affect You - Part 1

By Matthew Rodrigues


Inflation has been a prevalent issue for the United States as a whole for the past few months. Many people have noticed the price hike of daily goods such as eggs, butter, and coffee which are all up 38%, 26.4%, and 20% respectively since June of 2021, according to CNBC. Owners of ICE cars (Internal Combustion Engine) were not exempt from this phenomenon either. According to the U.S. Bureau of Labor the price of motor fuel for owners of both gasoline and diesel cars have increased approximately 60.2% since June of 2021.

The pains of the people have not gone unnoticed to the government, and they have come up with a solution for the problem that has worked repeatedly in the past. Raising interest rates. Over the past 60 years, there has always been an inversely proportional relationship between interest rates and inflation. This can be seen in the trends dating back to the financial crisis in 2007-2008. A quick recap of the time period: the housing market collapsed due to low interest rates, poor regulation, and destructive subprime mortgages. For a more sufficient article on this, read here.

The Numbers:

Though as a result of this crisis, interest rates were put between 0-0.25% from 2009-2015 for the economy to recover. During this time inflation was relatively stable, as interest rates remained within a fixed range. After this time, from 2015-2020, inflation continued to increase, but interest rates eventually started to catch up and eventually equaled inflation as of November of 2018 at 2.2%. Interest rates and Inflation hovered at the same levels for 11 months until October 2019 at 1.83%. After this inflation rates continued to rise for a bit and the federal interest rates fell, for the proceding months until March 2020, the start of the pandemic. As of March 2020, both interest rates and inflation rates plummeted to right around 0%.

A correlation can be seen between the issuing of stimulus checks and a skyrocketing inflation rate, a possibly poor economic decision by the government at the time to preserve the state of the economy at the time, and we may be suffering some of the consequences now. This led to inflation going from 0.2% in May 2020, to 1.3% as of February 2021. All the while the federal interest rate remained at 0.09% the entire time, possibly encouraging the inflation. Then in March of 2021, there was another massive spike in inflation due to supply chain issues around the world. This caused many commodities such as graphics cards to skyrocket in price.

These issues have continued to persist to today. Another jump in inflation can be noticed in September 2021, this would be due to the stabilizing of the economy at this time, and prices of consumer goods increasing. Inflation began to go down 0.2% with a 0.25% increase in federal interest rate over March and April of 2022. Despite this, inflation has had a steady climb. The federal interest rate has increased from approximately 1.21% in June of 2022 to approximately 2.25-2.5% as of today. Federal interest rate is speculated to reach 3.4% by the end of 2022, according to Forbes Advisor.

How Does This Affect You? / What Does This Increase Mean?

1) Increased Investment On All Loans

The inflation will heavily influence people’s large financial decisions, such as buying houses, cars, going to college, or making a substantial purchase on their credit card. People may reconsider their options/choices on these large financial decisions, as interest will increase on these loans.

2) The Stock Market

With an increase in interest rates, it may decrease the cash flows of companies as they wouldn’t want the liability of interest on their loans. Due to this reduction of cash flows, there will likely be a reduction in growth on quarterly reports, possibly causing stocks to drop in price.

3) Minor Increases on Savings Accounts Rates

Annual percentage yields vary from bank to bank between online banks and local credit unions. Despite this, there has been a minor increase in annual percentage yields across the US from 0.06-0.1% since January. It would be a good idea to set aside some money to put into a savings account and take advantage of it. This would be a great opportunity to budget effectively, as per the 50/30/20 rule mentioned earlier.

4) Rising Prices of Goods and Services

By definition, inflation entails the rising prices of goods and services. This means that common groceries, gas, appliances and other products would increase in price. Thus, it’s important to cut down and ensure that you’re only buying what’s necessary.

Concluding Statements:

In the next few articles, we’ll explain to you the primary reasons for the inflation and then explain to you how you can combat such inflation and improve your financial security during the 2022 inflation.

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