JACKSONVILLE, Fla. – U.S. inflation is the highest it’s been in 40 years.
The Labor Department said Thursday that consumer prices jumped 7.5% last month compared with a year earlier, the steepest year-over-year increase since February 1982. The acceleration of prices ranged across the economy, from food and furniture to apartment rents, airline fares and electricity.
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To give you perspective the Federal Reserve’s annual target for inflation every year is around 2%.
Over the past year, prices rose 41% for used cars and trucks, 40% for gasoline, 18% for bacon, 14% for bedroom furniture, 11% for women’s dresses.
So what does this mean to you? If you had $1 last year, it was worth $1. Now, that $1 is worth 7.5% less, so your $1 is not getting you as far.
Experts say that while there are ways to fix this problem, it has to be done slowly, meaning this situation is not going away overnight.
How did we get here?
“There’s a lot of reasons for it,” said Jacksonville University finance professor Abdel Missa. “The first thing is the monetary policies that we’re enacted after the COVID crises.”
Missa says that while the Fed lowering interest rates when the pandemic hit is one factor, there are many more such as:
- Supply chain shortages
- A shortage of workers as people got sick
- Heavy doses of federal aid, including stimulus checks
- An influx of new money being printed
- Tensions between international relations
- A huge demand for items once people got money and left their homes
“We basically overdid, overhelped the economy and overheated the economy,” Missa said.
University of North Florida professor of economics Andres Gallo says that led to “a perfect storm during the pandemic to increase these prices.”
Gallo says the Fed is already making changes and will begin raising interest rates in March.
“By increasing interest rates, you’re trying to slow down the growth of demand, and by slowing the growth of demand, you’re trying to decrease the prices,” Gallo said.
By raising interest rates, people won’t be as willing or able to buy things like homes and cars, and prices will level out. But Gallo says, if the Fed raises rates too quickly, it could end up like the 1980s.
“Interest rates got up to 18%, and that created a big recession,” Gallo said.
That meant higher unemployment and a situation similar to what we saw in 2008.
So that’s why economists say you’re not going to see that relief overnight.
Here’s the good news:
- As supply chain issues work themselves out, that should lower prices.
- There are no plans for anymore COVID-19 relief stimulus.
- Most economists believe they can get that 7.5% down to around 4% by the end of the year.
But until then, be careful with your money since $1 won’t take you as far now as it did last year.