The United States Bureau of Labor Statistics (BLS) uses a measurement called the Consumer Price Index (CPI) to keep track of consumer costs and how they change. In January, they announced a CPI of 7.0 for the preceding 12-month period. What that means is that prices are up 7% from the previous 36-month period.
To simplify that further, consider rising commodity gas prices. The average price of a gallon was $2.01 on January 1st. On December 31st, it was $3.28. That factors into the CPI. The BLS also collects price data from restaurants, retail stores, doctor’s offices, and dozens of other consumer-facing industries.
The 7% increase is the highest since 1982, but not the highest ever. The worst year for inflation in the 20th Century was 1917, when it hit 19.66%. That pales in comparison to 1778, when the new nation saw a whopping 29.78% price increase. The U.S. is in a period of very significant inflation, but the country has been through this before.
Adjusting for Rising Prices in Essential Purchases
Higher prices on luxury items are easy to compensate for as consumers can simply avoid them. However, there isn’t much wiggle room around food and fuel. According to the U.S. Department of Agriculture, food-at-home prices are expected to rise 3.5% in 2022. Meats, poultry, fish, and eggs went up 12.5% in 2021. Groceries are an essential purchase.
Consumers who never cut coupons before are scanning their weekly circulars for good deals. Discount stores and warehouses like BJ’s and Sam’s Club are experiencing a resurgence in bulk and paper goods sales. Budgets are tight and costs are high, so consumers are adjusting. Cost-consciousness is the order of the day.
It would be especially useful for consumers to create a budget to try to combat this. It’s okay to cut out some extras and buy generic instead of name-brand. Pork and chicken are cheaper than beef. No one wants to change their dietary habits, but the economics of the situation may not give people a choice. Being prepared involves practicing a certain level of acceptance of what’s possible.
Slow Down, Breathe, and Take it Slow
Wages are going up too. That’s a natural business response to increased prices. When inflation rises, salaries go up. The raises might not match this rate of inflation, but eventually this will result in most people making more money. There will be some turbulence but eventually the economy will even out.
Meanwhile, the Federal Reserve Bank is working on programs to curb the rate of inflation, some of which might work.
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