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Reasons for Inflation: US Inflation in 2022

Updated: Apr 30, 2022

Inflation is defined as the soaring of the average prices of goods and services. This generally happens due to changes in the demand and supply for different goods and services on a national or international level.

For instance, if there is a boom in a business with low unemployment and an increasing workers’ wages, the customers end up having more income for themselves at their disposal. This increase in the disposable income, leads to an ability to buy more goods and services. Due to an increase in the demand for these goods and services, the average prices are bound to rise.

If for example, the economy is in trouble, there will be an increase in the unemployment while the wages would remain constant. In such a scenario, consumers will not be able to buy more goods and services, leading to a reduction in the production. Due to this, there is an increase in the average prices resulting from the reduction in the supply of goods and services.

Additionally, inflation also causes currency values to depreciate, in addition to raising the cost of goods and services. As prices rise, your income's purchasing power—dollar for dollar—decreases, requiring more dollars to acquire the same quantity of products and services. In order to stay up with or exceed inflation, your personal savings and investments will have to work harder over time. It's critical to keep inflation in mind while you continue to save for retirement and make large purchases.

Reasons for the US Inflation in 2022:

If you look at the markets for any decade, on an average, they go up for 7 years and down for the remaining 3 years. For this decade, it feels like the markets are going to get worse, however, they should get better sometime soon.

According to the economists, US inflation for the next year should be affected by:

  • The Fed might end up reducing the rates due to a decrease in the consumer expenditure

  • Wages and rents will still increase, however, and there will be a situation of bounded supplies

Due to the coronavirus pandemic, people have gotten into the habit of spending more on household items than on travelling and entertainment. Due to the new hybrid work culture, there has been a reduction in using the sources which were being used before the pandemic had hit the world.

There's unlikely to be another increase on big-ticket items like there was during the lockdown, which drove up the costs. The Federal Reserve is putting the brakes on monetary policy, and statistical quirks will hopefully bring the inflation down by a few points.

According to data produced by industry groups like Zillow and Yardi, the real-estate boom that gathered steam and pushed housing prices to new highs has resulted in a rise in rentals.

According to David Wilcox at Bloomberg Economics, the summer of 2022 will see the housing prices to increase to close to about the 6% - 7% range. If this actually occurs, it would be the highest in the past 30 years.

Market expectations for US monetary policy are changing dramatically. Several analysts feel that monetary policy is too loose, and that the Federal Reserve will hike interest rates to at least 2.5 percent by mid-2023.

If your concerned about inflation and it's impact on your future plans, speak to one of our financial advisors to find out how they can help you navigate the road ahead.

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