Inflation. Nearing a 40-year high, it’s tough to miss. While prices have been creeping up, The Federal Reserve has been trying to slow the surge of inflation. But what does each mean for you, and how can you handle inflation in your own life while The Fed works on handling it nationwide?

I Spy … Inflation!

Even if you haven’t been shopping for a new or new-to-you vehicle, which are both up in price, you’ve probably noticed higher costs in a few places. 

The Consumer Price Index (CPI), which tracks prices on a variety of goods and acts as a proxy for the cost of living, was up 6.8% above November 2020 costs as of November 2021.

You might have seen inflation at the grocery store with food prices up 6.1%. With the steepest increases in beef, pork, poultry, fish and seafood, as well as eggs, I’ll be sticking to my vegan diet. (The price for my five-pound bag of coffee went up, too, but it’s not something I can go without.)

Does your favorite food now come in new packaging? That might be a result of shrinkflation.

Another common sight? The gas pump. With fuel prices up almost 60% above last year, gasoline is an especially tough one to miss. Electric vehicle, anyone?

And if you use gas to heat your home or your food, that Xcel Energy bill has probably increased, too. Home heating oil is up 59.3%.

Inflation and The Fed

The Federal Reserve has two main goals: To “maintain a stable and growing economy through price stability and full employment.” It does this by changing interest rates to control inflation and through buying and selling Treasury bonds — both of which have made headlines lately. 

If you follow the news like me, you’ve probably been hearing quite a bit about the three interest rate hikes that The Federal Reserve has planned for 2022. While this doesn’t directly affect consumers like us, the rate they’ll be upping is the one big banks pay to borrow from other banks for overnight loans. 

The Fed has also announced that it will slow its bond-buying. It had been purchasing more Treasury bonds throughout the pandemic to increase the cash supply circulating in the economy and keep interest rates low. As it winds down these bond purchases, The Federal Reserve will be pumping less cash into the economy. 

Pushing less cash into the economy alongside rate hikes causes the interest rates we’re familiar with to rise. Why? Less cash in the economy plus higher costs for borrowing that cash means that the big banks will pass their higher borrowing costs along to consumers.

The result is that you might see a higher interest rate in your bank account — like that in your savings account possibly going back to 0.5%. But could be less than good news for folks who have loans with variable interest rates and those looking to borrow in the future.

An Inflation … Upside?

Maybe not. Inflation is certainly no fun. But I’d be remiss to focus wholly on the downside, aka the stuff we want and need getting pricier to purchase. 

From the perspective of the omicron wave of the continued pandemic, we’ve seen a strengthening economy. That’s given rise to increasing wages and decreasing unemployment. This is a hopeful sign that we’re moving back toward a peak in the economic cycle and further away from the potential for recession.

And I certainly wouldn’t mind seeing a little more interest gained on the emergency/opportunity funds in my high-yield savings account. 

If you’d like a hand navigating inflationary pressures, let us know. We can get together in a quick web meeting to stress-test inflation’s effect on your financial plan or revisit your budget plan worksheet to see how higher grocery, gas, and utility prices could affect your cash-flow plan.

And one of the best ways to (try to) beat inflation? Investing in the stock market. You probably knew already, but we can help with that, too.