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News: Inflation Reaches 5.4%. Here’s How It Affects You

Inflation sends prices soaring; here’s how you may feel the pinch.

Justin Cupler

Contributing Writer at Tally

July 30, 2021

As the economy continues its recovery from the COVID-19 pandemic’s far-reaching impact, there’s a key tradeoff to the return of somewhat normalcy: price increases. The June 2021 Consumer Price Index (CPI) jumped by 5.4% year to date, marking the largest inflation we’ve experienced since 2008.

Here’s what’s causing the rapid inflation and what it means to you. 

What’s causing rapid inflation?

There are easy-to-identify causes for this sudden rise in inflation, and a key driver has been supply chain issues. The less supply there is, the more pricing will go up — it’s basic economics. 

But there is one segment in particular pushing inflation: cars.

As computer chip shortages stifle new-car production, used cars have suddenly become a hot commodity. The shortage has driven the price of pre-owned cars and trucks up 10.5% from May, which accounted for one-third of the CPI increase in June. In the past 12 months, used car prices have leaped a total of 45.2%. 

Cars aren’t the only thing that’s pushing inflation through the roof. We’re also feeling the pinch at the pump, as gasoline rose 2.5% in June after two straight months of decreases. Riding June’s increase, gasoline prices have risen 45.1% in the past 12 months. 

Food costs are also soaring, as food at home (groceries) rose 0.8% in June and dining out increased 0.7%. Over the last 12 months, the cost of food away from home rose 4.2%, while food at home has seen a more modest 0.9% 12-month increase.

According to Richard F. Moody, chief economist at Regions Financial Corp., a jump in demand is also pushing the needle. Consumers penned up by COVID restrictions now have savings to spend and a desire to get out. This has also led to big jumps in travel costs, like rental cars, hotel rooms and airfare, further boosting inflation. 

How long will these increases last?

While it’s hard to put a precise time frame on this type of inflation because it so rarely occurs, the Biden administration and many experts agree this is all temporary — officials believe we’re in this cycle for the next year or so. 

Other experts see the price cooling coming in stages. According to experts, we’re already seeing the once-red-hot lumber demand falling, bringing prices down with it. They expect the same with cars and trucks as chip production starts and new supplies level out. 

How will inflation impact you? 

The inflation we’re experiencing now is rather widespread and will likely impact consumers in many ways. 

Increased car costs

If you’re in the market for a new or pre-owned vehicle, you’re likely feeling the pressure as new supply continues to arrive slowly and pre-owned car prices rise amid heavy demand. 

But as the chip shortage loosens and new-car inventory returns, experts predict used-car pricing will return to normal.

Tighter grocery budget

With at-home food prices increasing 0.4% in April and May and 0.8% in June, you’ve likely seen your dollar stretching less at the grocery store. With food being one of the few rising costs you can’t simply avoid, you may need to mitigate them by trimming back on unnecessary purchases, like snacks and flavored drinks, and focusing on the necessities. 

Big dinner bill

As bars and restaurants struggle to hire workers and increase wages to attract new applicants, the price of eating out has risen 4.2% in the past 12 months. This may push dining out further down your monthly budget, allowing you to focus more money on buying groceries and cooking at home.

Big-ticket vacations

Just as COVID-19 destroyed the travel industry’s 2020, inflation is doing the opposite. Consumers are itching to travel, but the industry is still recuperating from the COVID-fueled demand slash, so prices are soaring in virtually all key travel sectors. 

Airfare is up another 2.7% in June after months of consistent increases. Over the past year, airfare has risen 24.6%. 

In June’s report, hotel rates are up another 7.9%, pushing the YTD increase to 16.9%. 

Even car and truck rental fees are way up — a 5.2% increase in June. This brings the total 12-month price increase to 87.7% on rental car costs. 

These increased prices may force consumers to delay, modify or even cancel their vacation plans until hiring catches up to demand and prices fall to normal ranges. 

Did inflation put you in a bind? 

While experts mostly agree that the pricing surges we’re seeing are temporary, the surge has been ongoing for over a year. You may be feeling the pinch from these inflation numbers, but with lifestyle modifications and changes in plans, like when to buy a car, you may be able to help mitigate the impact. 

For now, it’s simply a waiting game while supply chains and hiring catch up with growing demand.