“Price stability is the bedrock of the economy,” said Jerome Powell, the current Chair of the Federal Reserve of the United States. It is good to purchase anything without first verifying the pricing since you already know how much it costs. To not worry about being able to pay the rent because you have a stable salary feels nice. It is satisfying to have enough money to meet not only your necessities but also your wants. However, people are now increasingly concerned about their finances due to inflation.
Inflation
As defined by the International Monetary Fund (IMF), “Inflation is the rate of increase in prices over a given period of time.” It often measures the overall increase in prices or the increase in the cost of living in a country. Though, it also measures the prices of certain goods and services, such as bread, shirts, and haircuts. Basically, it indicates how much more costly a specific set of products and/or services has become over a specific time period, most typically a year.
Currently, the inflation rate in the world is somfn. According to the U.S. Labor Department, US inflation rate is currently at 8.2 percent. It was previously 8.3 percent.
Consumer spending – total money spent in an economy on final products and services by individuals and families for personal use and enjoyment – is the main driver of the US economy. It relates to consumer confidence. Due to the current economic situation, consumer confidence has declined.
Inflation To Individuals
“I used to stop by Starbucks for my daily Macchiato every morning before I go to work but now that everything is pricier I just make my own at home. Now, I get to save almost 5 dollars every day,” a New York resident told NY Art Life.
Another resident admitted reducing their takeaway orders to save money. “I can’t believe I’m saying this but I’m preparing our dinners now! Well, it turns out that cooking with my kids is fun. We get to bond after working and schooling. And it’s cost-effective!”
So what exactly is the reason behind the skyrocketing costs of nearly everything? COVID-19 lockdowns and Russia’s invasion of Ukraine.
Soaring Prices
The lockdowns and other restrictive measures caused by the COVID-19 pandemic in early 2020 severely impacted global supply chains. It closed factories and congested marine ports. To mitigate the economic worries, the government disbursed stimulus checks and increased unemployment benefits to help individuals and small businesses deal with the financial losses. When COVID vaccinations were finally available, demand exceeded supply, which was still struggling to return to pre-COVID levels. This is inflation.
When Russia invaded Ukraine in February 2022, the world imposed a series of economic sanctions and trade restrictions on Russia. Russia, a large producer of fossil fuels, strikes back by limiting the world’s supply of oil and gas. It led to soaring oil prices in all parts of the world. At the same time, Ukraine, a big exporter of grains like barley, corm and wheat, could not export them. Prices lower on the value chain increased in tandem with rising prices for food and gasoline.
Furthermore, the pandemic is still ongoing, and there is always the possibility of newer and stronger variants emerging. One can also see that inflation is caused not only by predictable economic changes, but also by geopolitical events.
Mitigating Inflation
Too much inflation is generally considered bad for an economy, while too little inflation is also considered harmful. Many economists advocate for a middle-ground of low to moderate inflation, of around 2% per year. Generally speaking, higher inflation harms savers because it erodes the purchasing power of the money they have saved.
“Inflation remains well above our longer-run goal of 2 percent,” the Chair of the Federal Reserve of the United States said in a press conference on Wednesday.
He said that even if inflation is high, longer-term inflation expectations appear to be well anchored, as evidenced by a number of surveys of individuals, businesses, and forecasters, as well as financial market indicators
“But that is not grounds for complacency; the longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched,” he added.
In other parts of the world, there is also inflation. The United Kingdom currently has an inflation rate of 8.8 percent, higher than the previous rate of 8.6 percent. Meanwhile, Italy has an inflation rate of 9.4 percent, higher than the previous rate of 9.1 percent.
What You Can Do
At NY Art Life, we care about everyone in the world, in whatever aspect of life that may be. Here are some tips to alleviate financial problems or inflation:
- Take advantage of high interest rates by investing in high-interest savings accounts or term deposits if possible
- Only spend on necessary things, and cut out going on shopping sprees
- Increase your earnings by taking on an extra job or a side hustle
“I don’t think there will be a recession. If it is, it’ll be a very slight recession,” President Joe Biden told Jake Tapper on a CNN interview. He acknowledged that the country has “real problems” but pointed to legislation like the Inflation Reduction Act as helping place the country in “a better position than any other major country in the world, economically and politically.”
Inflation rates felt everywhere just indicates that everything in the world is connected. What happens in another country can reflect what is happening to other countries. Globalization created a domino effect. When one economy falls, there is a possibility for another to follow.
What are your thoughts on this situation? Let us know in the comments below.
