You’ve likely noticed rises in the cost of groceries or higher-priced fuel. That’s because inflation rates can impact your purchasing power. Inflation rates show how prices for goods and services increase over a period of time. They’re measured in reference to the Consumer Price Index (CPI). In June 2022, the annualized rate hit 9.1%. To compare, the CPI remained below 3% for more than 20 years before 2020. The U.S. hasn’t seen rates like this since there was hyperinflation in the 1970s, so how’d we get here?

What Causes Increased Inflation Rates?

Most economists associate boosts in costs with an increasing inflation rate. Increased inflation rates can be a culmination of factors like issues in the supply chain, recovery efforts from COVID-19, impacts of war in Ukraine, wage growth, and Federal Reserve (Fed) rate surges.

Although the Fed hasn’t formally identified an ideal inflation rate, policymakers prefer a rate of just under 2%. It encourages spending and economic growth. Low inflation rates allow the Fed to keep interest rates down, stimulating the economy. In 2020 the Fed hit 0% to prevent economic turmoil amid COVID-19. Last time the rate was that low the United States was navigating the Great Recession in 2008. At the beginning of 2023, the rate was 4.50% to 4.75%, making it more costly for consumers to borrow money from lenders.

How Do High Inflation Rates Impact Consumers?

High inflation rates generally mean higher-priced goods and services. At the end of 2022, inflation rates slightly lowered to 6.5%. Consumers still struggled with the high cost of products such as fresh food and new vehicles. Inflation also impacts your cost of living and the housing market. From fuel to shelter, daily needs cost more. Price tag pain points were predicted to subside further into 2023.

What about banking? Periods of high inflation rates are typically associated with high-interest rates on bank loans. Hoping to make some home improvements or invest in a big-ticket item? As inflation rates retreat from the peaks, you should consult your banker about loan options that won’t break your budget. We’ll talk you through things to consider so you know where to start and how to succeed.

What Does the Future Hold?

Since rates were predicted to decrease in 2023, consumers may gradually experience some relief. In January 2023, the Fed hiked rates as inflation eased. The Survey of Consumer Expectations (SCE) from December 2022 indicated inflation expectations were on a short-term decline.

Savvy consumers should continue to make the most of their buying power. Prioritize your essential needs and seek financial guidance from an expert at Plains Commerce Bank. We’re proud to be a helpful resource in the ever-shifting economy.

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