Inflation has been a buzzword causing anxiety among Americans for the past few years. A staggering 86% of Americans are worried about inflation. This concern is not just about the rise in prices but also about the persistently high prices that follow. Understanding how people perceive inflation and its impact on their lives requires a closer examination of inflation trends over four years.
The Big Picture
When we talk about inflation, we often think about the rise in prices as stated in a short period like monthly or over a year. However, many Americans define inflation as the increase in prices over a longer period, typically four years, rather than just a one-year snapshot. This broader view helps to understand the cumulative impact of inflation on household budgets.
Over the past four years, the U.S. has experienced various economic shifts that have contributed to inflationary pressures. Key factors include:
- Supply Chain Disruptions: The COVID-19 pandemic caused significant disruptions in global supply chains, leading to shortages of goods and increased costs.
- Economic Stimulus: Government stimulus measures during COVID gave lots of consumers excess cash to spend, at the same time that some supplies were constrained
- Labor Market Changes: Wage increases in response to labor shortages, particularly in the low-wage service sector, have also added to the inflationary pressures.
High Prices vs. Inflation
Interestingly, Americans are just as concerned about high prices as they are about inflation itself. This distinction is important because while inflation refers to the rate at which prices rise, high prices are the result of sustained inflation. For many consumers, the distinction between these two is blurred, leading to a conflation of the terms under the “inflation” banner.
The worry about high prices is understandable. When everyday essentials like groceries, gas, and housing become more expensive, it directly affects household budgets and financial security. People feel the pinch more acutely because their incomes may not be rising at the same pace as the costs of living.
If you plan to retire early, don’t neglect inflation as a calculation in your “FIRE.” The past four years have been a reminder that inflation is a real concern, as we have no choice but to buy food and other staples. If you are an investor, the markets have returned strong gains that may make up for your reduced spending power. If you have many children to feed but few investments, this period has been very expensive. What changes did you make to cope?
