What is Inflation, and How Will It Affect Me?

Inflation: It’s a scary word for consumers — and when it’s high, it can take a heavy toll on their finances.  So just what is inflation, and how does it affect ordinary American citizens? Read on for a deeper dive into the topic, along with some of the basics about what causes inflation, how it could impact you, and how long it tends to stick around.

What is inflation?

Inflation is a measure of how much more a good or service costs over a given period of time. In most cases, it’s measured over the course of a year. It is typically a broad measure — for example, serving to represent the rise in the overall cost of living in a particular nation or region. But it can also be calculated more narrowly, tracking, for example, the rise in the cost of a single commodity like eggs or gasoline.

As a hypothetical case in point, if the cost of an average gallon of milk was $3 one year ago, and had risen to $4 today, the year-over-year inflation rate for the milk would be 33.3%. Similarly, if the average cost of living in a particular region had been $40,000 per year one year ago, and had risen to $50,000 per year today, the inflation rate in that region over the course of the year would be 25%.

What triggers inflation? 

A range of factors can drive inflation. Generally, though, inflation is caused by a rise in the costs of producing a good or providing a service, an increase in the demand for a product or service, or a combination of the two. 

On a larger scale, inflation can result when the money supply in a region or nation grows too large in relation to the size of the economy, causing the unit value of the currency used there to fall. In other words, the purchasing power of a unit of currency — for example, a dollar in the United States — goes down, while the prices of goods and services subsequently rise. 

In essence, the value of money and the cost of goods and services often exist in a supply-and-demand relationship. In the case mentioned just above, as the supply of money goes up and the availability of goods and services goes down, the money becomes less valuable as the goods and services become pricier.

How does inflation impact the average consumer?

In general, inflation makes it harder for consumers to afford the things they need to get by, as well as the luxuries they’d like to purchase. It also decreases the buying value of their savings.

But the degree to which the impacts of inflation affect the average consumer varies depending on where he or she lives. For example, prices during 2022’s heavy period of inflation saw the steepest rises in the Mountain West region, while the Northeast saw slower price growth than the rest of the nation. Inflation is also much higher on certain goods and services than others, with some of the sharpest rises nationwide in 2022 seen with gasoline, vehicle rentals, used vehicles, natural gas, hotels/motels, beef and bacon.

Is inflation temporary? 

Inflation is, in general, always with us. As an example, consider the average cost of a movie ticket over time. In 1990, the average ticket price was $4.22. By 2000, it had jumped to $5.39. In 2010, a movie ticket averaged $7.89. And by 2018, it had climbed to $9.11.

But inflation saw a much sharper and faster rise in the wake of the global COVID-19 pandemic than is typical. Part of this was anticipated, as pandemic restrictions and their ripple effects disrupted supply chains, increased the cost of labor, and made the transport of goods more expensive. In addition, Russia’s war in Ukraine created a sharp rise in the cost of oil, which in turn caused prices to rise on all sorts of goods that have to be transported.

While it is impossible to predict where inflation levels are headed with 100% accuracy, most experts expect inflation to remain at higher-than-normal levels through the end of the year 2022. Most predictions call for the inflation rates to fall a bit from their recent highs of over 8% to a still-high 6% range by the end of 2022. Then, according to forecasts, the inflation rate is expected to fall faster in 2023, hitting levels of around 3% by the end of the year.

What can I do if I need money to bridge the gap?

A wise approach to enduring times of high inflation would be to find ways to cut costs and, as much as possible, avoid unnecessary spending. When must-pay expenses arise and available funds are short, though, one popular option for consumers who need extra funds is to take out a short-term personal loan. 

An installment loan, for example, offers a relatively hassle-free way for consumers to secure needed money quickly. When procured through a lender such as Security Finance, oftentimes these loans allow borrowers to get money quickly and on more flexible terms than those typically offered by banks. Bank accounts and perfect credit are not required to take out the loans, and Security Finance team members can help borrowers establish an affordable monthly payment plan.