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Why Is Everything So Expensive Right Now?

Why are prices going up so much, and how long can we expect this trend to continue? Understanding how inflation works might give us some clues.

September 2, 2021

Have you recently noticed your grocery bill creeping higher? Or realized that it’s costing more to fill your tank? You’re not alone. Almost everything is more expensive right now.

In fact, the July 2021 news release from the U.S. Bureau of Labor Statistics reports that its Consumer Price Index for All Urban Consumers (CPI-U), increased 0.9% in June on a seasonally adjusted basis, representing “the largest 1-month change since June 2008 when the index rose 1.0%.” 

Further, the release notes, “Over the last 12 months, the all items index increased 5.4% before seasonal adjustment; this was the largest 12-month increase since a 5.4% increase for the period ending August 2008.”

What’s going on? Why are prices going up so much, and how long can we expect this trend to continue? The short answer is that nobody really knows for certain, but that understanding how inflation works can give us some clues.

Understanding inflation

Per Investopedia, “Inflation is the decline of purchasing power of a given currency over time.” For example, if a loaf of bread and a gallon of milk cost $7 to purchase one year and $10 to purchase the next, inflation may have occurred. The $7 you had initially buys you less in the second year than it did in the first.

Of course, in practice, inflation is rarely so straightforward. Many of the purchases we make are more complex than bread and milk; the cost of healthcare, for example, is influenced by many factors beyond supply and demand. Situational or time-limited factors — such as the COVID-19 recession and ongoing supply chain challenges — can also artificially impact measured rates of inflation.

Inflation is generally managed by a country’s central monetary authority. In the U.S., that’s the U.S. Federal Reserve, or the Fed, which influences inflation by controlling the federal funds rate. This, in turn, affects the rates at which households and businesses can access funding. When the federal funds rate is low, buying becomes easier, which can drive wages and prices higher as demand increases. 

Should I be concerned about the 2021 inflation rate?

There’s no doubt we’re seeing inflation in today’s higher prices, but as of yet, the Fed isn’t ringing any alarm bells. As recently as June 2021, Federal Reserve Chair Jerome Powell has called the inflation we’re seeing “transitory,” though the Fed has also moved up its estimated time frame for increasing rates in the future.

To be certain, there are a number of situational factors driving costs higher, including, but not limited to:

None of these factors are expected to be permanent, though how quickly they resolve is still unknown — and likely to be affected by how well Delta and other COVID-19 variants can be controlled.

Higher costs from inflation: 2021 estimates

Given this uncertainty, Kiplinger’s David Payne writes that, “Inflation cooled in July, but price pressures will be elevated for some time to come.” Whether or not his prediction pans out, it’s likely that we’ll continue to see higher costs associated with the following goods and services through the rest of 2021:

  • Food and groceries

  • Computers and electronics

  • Furniture and home decor

  • Gas

  • Home exercise equipment

  • Video games and video game consoles

  • Weddings and other events

  • Energy bills

  • Shipping and postage

  • Clothing

These are expenses that are common and, ultimately, necessary, but higher costs will continue for the foreseeable future due to product shortages, increased demand and employment hardships in many industries — all of which were brought about by the COVID-19 pandemic. With variants of the virus continuing to keep us guessing what’s next, it’s fair to say that higher prices for everyday items may be the “new normal” for a while.

So what can you do in response? If you’re planning major purchases that can be pushed back 6 to 12 months, holding off may mean being able to take advantage of lower costs in the future. If you can’t wait, at least account for delays. Furniture deliveries, for example, are taking up to 5 to 9 months in some cases. Order well in advance if you need in-demand items by a certain date.

From a financial perspective, now is a great time to trim your budget of unnecessary expenses and to be even more diligent about shopping sales and looking for discounts. Paying off credit card debt can also help by freeing up monthly payment amounts that you can use to offset the higher costs of your purchases, rather than service debt.

If you need help paying off high-interest credit card debt, Tally may be able to help. Give our Debt Calculator a try to see if you qualify for a low-interest debt payoff line of credit.