Why Is Inflation So High Right Now? – Motley Fool
Here’s why consumer goods are so expensive.
These days, many people are bemoaning the fact that life has gotten so gosh darn expensive. Gas costs more. Grocery prices are up. And forget those sweet holiday deals; this year, many people will be lucky to get their hands on the things they want, and they’ll most likely pay a premium for them.
In October, the Consumer Price Index rose 6.2% on an annual basis (meaning, the cost of consumer goods was up 6.2% from a year prior). So what’s causing such rampant inflation? There are a few factors that are coming together to create a scenario that’s wreaking havoc on consumers’ finances.
Low supply and high demand
If you ever took Economics 101, you may recall the relationship between supply and demand — namely that when there’s not enough supply of a given commodity to go around, demand increases, and so do prices. That’s what’s been happening in recent months.
During the pandemic, a number of key supply chains were disrupted or shut down. Now those supply chains are trying to ramp back up — but that’s not happening quickly enough.
Meanwhile, the economy has come a long way from where things stood a year ago. Currently, unemployment is lower and jobs are plentiful. Consumers have more money to spend — and they’re eager to spend it. But since there’s not enough supply to keep up with consumer demand, prices have been rising.
The interesting thing about inflation is that it’s easy to regard it as an indicator of a poor economy. But actually, inflation is often a sign of a healthy economy. If there were less demand for products, prices wouldn’t be up so much. And so while most of us aren’t going to go out and celebrate inflation, it’s actually a sign that our full economic recovery may be closer.
How to combat inflation
Periods of inflation can be harmful to individual finances, and that’s what may be happening right now. If you’re having a hard time keeping up with rising living costs, there are a few steps you can take to make things easier.
First, get on a tight budget. Figure out exactly how much money you need to spend on essentials given today’s higher costs, and only once you’ve accounted for those expenses should you allocate money to non-essentials, like entertainment.
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