The Rise of Inflation and The Reasoning Behind It

The US Consumer Price Index climbed 6.8% in 2021 alone, which begs the question: Why is inflation so high? Inflation can be defined as an increase in the price of goods or services due to weakening currency. Common causes for inflation are a surge in product demand, an increase in production cost, supply chain breakdowns, and changing house prices. This phenomenon can  be measured using the Consumer Price Index (CPI), which accounts for a large number of goods and services such as housing, food, education, medicine, transportation, and more. Although the federal reserve aims to maintain inflation at 2% or less, the rates continue to rise as inflation is higher than ever.

Inflation in America has been a point of fluctuation since before the 1800s, with the highest recorded inflation rate of all time, 29.78%, occurring in 1778. Similarly, as of 2021, prices for items like used cars, food, healthcare, clothing, and energy all rose; Simply, we are paying more for the same amount. The United States has three main strategies to control inflation: Reducing the amount of money in circulation, decreasing bond prices, and increasing interest rates through the central bank. However, these sometimes have unintentional consequences such as inducing recessions, decreasing spending power, and creating job loss. The United States has experienced over 19 recessions in less than 100 years, and ongoing inflation can lead to higher cost of living, increased interest rates, and an adjustment in the cost of living.

Fortunately, one can protect themselves from the potential detrimental effects of inflation through several attainable methods. Investing in stocks, purchasing property, increasing earning potential, considering commodities, and raising retirement contributions are all methods that one can use to diminish the effects of inflation on personal finances.