2022 Rising Inflation

Many of us were familiar with inflation before but have felt its effects much more acutely this last year. While “normal” inflation hovers around 2% in the U.S., recent inflation has been nearly four times that. So unless you haven’t bought groceries since early 2020, you have experienced inflation firsthand.

How Did We Get Here?

The Consumer Price Index (CPI)—a measure of the average change in the price of a basket of consumer goods and services used to represent inflation—stands at 8.3% year over year as of April 2022.

Some of the categories experiencing the greatest inflation rate include cars, food, energy, and housing (rent prices are included in the CPI while home prices are not). And according to Redfin, home prices nationwide were up 15.5% year-over-year in April.

In January of 2020, the CPI was 2.5% year over year.

That was before.

The pandemic changed everything. As governments rushed to aid  their people, the economy experienced an influx of cash. As manufacturing plants halted production worldwide, businesses faced unparalleled supply shortages. As the world re-opened, demand surged. As Russia invaded Ukraine, supply chains continued to experience incredible stress.

All of these things (and more) have contributed to inflated prices everywhere. Suppliers are raising rates, which leads businesses to raise rates to retain profit margins. Ultimately, the consumer ends up paying a higher price. 

How does this manifest? A gallon of gas that cost $3, on average, a year ago costs $4.60 today. For the same time frame, a bag of flour is 14.2% more expensive now than it was then.

What’s Ahead?

Inflation is a primary concern for Americans. According to a recent poll, 7-in-10 Americans say inflation is a big problem.

Politicians are beginning to put more pressure on the central bank to do something about rising prices. As they are aware of the day-to-day impact inflation has on consumers’ wallets.

The Federal Reserve isn’t unawares. The institution has been hatching plans to combat inflation for a while now, but the question is: are they doing enough? In March of 2022, we saw the first interest rate hike —a whopping .25%. Since then, the Fed has raised interest rates one other time, at the beginning of May, this time by .5%. It plans to continue to raise rates intermittently in the coming year. According to officials, more-aggressive hikes may be in store to make progress in curbing inflation before it is too late.

One thing we know as investors? The market doesn’t love rising interest rates. From home sales to new business ventures, higher interest rates slow growth. Slow growth tends to reduce share prices. If you’re a company looking to raise capital, the current contraction will make things more difficult. To increase your access to funding, learn how to verify accredited investors. If you have a pool of investors who need verification, ensure they receive their accredited investor status certificate through a verifiable source, such as Verify Investor.

While rising rates are imperative to tackle rising inflation, some businesses might crumble under pressure. We can’t say how the market will react to future policy changes and events, but we know it’s critical to be prepared.