Inflation Continues To Rock The United States

The Dividend Investing Dad

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Over months, inflation has hit the United States, with 8.5% in March. With inflation continuing to rise, it is hitting the average American hard from housing, the grocery store, and transportation costs. And while the Fed is trying to slow things down, it isn't going to help much in the short term.

You are probably feeling it. The easiest to spot for the average American at the gas pump is $4.08. The highest average for a state is currently $5.24 in Hawaii, and the lowest is $3.93 in Michigan. The rest of us sit somewhere in between.

The general cost of living per the Cost of Living Index shows a vast separation between states. With Mississippi being the lowest and Hawaii being double. And reviewing the different categories, it is clear that it applies to groceries, transportation, housing, and utilities.

What caused this massive amount of inflation?

There are a lot of theories as to why inflation has started to jump in the United States. Some reasons are high demand (due to stimulus and tax payments) with low supply (due to supply chain issues). Others believe it has more to do with Russia's invasion of Ukraine, which drove up oil and gas prices. The likely reason is a combination of these theories.

Even with inflation rising, demand for goods remains high in the current economy. This is partly due to the need for many and the lingering effects of additional money sent to people within the United States who may not have needed the stimulus or tax credit money.

And things don't look to be slowing down any time soon. Based on projections, inflation may remain high for another 18 to 24 months. This could balance out if the government does what it can to slow it down, or it could send us into a recession.

What is the government doing to help combat inflation?

It has a lot of options, but it also needs to be careful of pushing us into a recession. According to Investopedia, there are three things that the federal government can do to fight inflation.

  1. Create wage and price controls to slow down demand, but this can cause job loss and push us into a recession.
  2. Reduce the money supply by reducing bonds and increasing the federal interest rate, which they are doing right now.
  3. Lower reserve requirements for banks to have less money on hand to lend will decrease loan opportunities.

Most of the time, option number two happens where they reduce the money supply. This course of action makes sense because they increased the money supply significantly during the pandemic with stimulus checks and child tax credits.

However, this will hurt people trying to buy homes in the current market as housing costs continue to rise, but interest rates will rise, making home loans less affordable.

What can you do to fight inflation for your family?

While we can hope for the government to make the right decisions to help improve things for our nation, there are ways that we can fight inflation for ourselves. Here are five of those ways:

  1. Re-evaluate your budget. Reduce costs on things that are not necessary so you can build up a nest egg in case of an emergency.
  2. Lock in your current rent. Renters can increase rental rates with inflation. If you can lock in your rental cost for an extended amount of time, this can save you in the long run.
  3. Improve energy efficiency in your home. If you own a home, find ways to reduce your utilities. Get smaller trash cans, use less power or gas, and use less water. These reductions will lower your bills putting money back in your hand.
  4. Prepare for shortages. We have seen this already, but one way is to buy a little extra when at the store. Don't panic buy per se. Pick up one or two additional essential items each time you go to the store.
  5. Buy better quality products. This will save you from purchasing items over the next 18 to 24 months that inflation is projected to continue.

These are just a few ideas that we are implementing in our life to prepare for the next year or two. And, if inflation does start to drop sooner, it will give us a hand up as we come out the other side.

What are you doing to fight inflation?

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I focus on financial situations that impact the everyday person. I am a self taught dividend investor, side hustler, a writer.

Spokane, WA
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