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When will the price increases end? Probably never


At the grocery store, you get about 11 cents less than just a year ago. That dollar covers 15 cents less on utility bills and it’s worth six cents less on your rent and housing costs. That’s a pretty decent change.

It also explains why, as prices rise across the board, inflation is now a major concern for Americans.
The rate of inflation is almost as high as it was in the early 1980s. According to the last July report from the Bureau of Labor Statistics, it was 8.5% but would have been even higher without the drop in oil prices. essence.

So when will the price increases end? The answer is probably never. But that’s not a bad thing, as long as the increases aren’t too high.

It’s not just the United States that faces this problem. In almost all of the world’s advanced economies, the average annual inflation rate in the first quarter of this year was at least double that of last year.
People all over the world are facing tough decisions about how to stretch their paychecks. Wages and salaries have fallen 3.5% over the past year, after adjusting for rising prices.

Why some inflation is good

Inflation doesn’t stop, it just gets less bad. And, in fact, we don’t want this to end completely.

The Federal Reserve, the US central bank charged with bringing down the rate of inflation through a series of interest rate hikes, is aiming for a target of around 2%. This means that prices will still increase, but not as much.

When people say inflation is going down, they don’t mean groceries are getting cheaper. They mean that they do not increase as much each month. It is very rare to enter a deflationary period, and the government likes to avoid it if possible because it usually indicates that the economy is cooling too quickly.

So yes, inflation will continue for a very long time, but you won’t notice it as much. Between the beginning of 1991 and the end of 2019, year-on-year inflation averaged around 2.3% per month. These are ideal increases, the kind that increases in the cost of living can follow, the kind of “in my day a soda only cost a nickel” increases that only become evident over long periods of time.

That doesn’t mean some prices won’t drop, of course. The price of gas, for example, has fallen considerably over the past two months. Food prices could also fall. Food and gasoline prices are more volatile than other expenses as they are influenced by outside factors such as supply chain issues and Russia’s war against Ukraine. There is little the Federal Reserve can do to control them, and they tend to swing back and forth.
Gas prices have fallen.  Here's why inflation hasn't

But for the most part, prices for goods will remain higher, and consumers won’t feel relief until their wages catch up to the new prices. Over the past four decades, there has been no deflation in basic goods, which excludes food and energy, said Nick Roussanov, professor at Wharton finance. Durable goods and services, such as cars, appliances and education, rarely drop in price.

The Fed is now trying to shorten the time it takes for wages to catch up to these new prices. The longer it takes for this to happen, the more likely it is that Americans will dip into their savings or incur credit card debt. It’s already happening: Over the past year, credit card debt has jumped $100 billion, or 13%, the largest percentage increase in more than 20 years.

The reason for optimism

Inflation will not continue indefinitely at the current rate. Most economists predict it will return to that 2% target rate by 2024.

So yes, things will continue to be painful, but they will be nothing like the bring-a-wheelbarrow-of-money-to-buy-a-loaf-of-bread inflationary crises that we have heard about in history class. No one worries about hyperinflation, at least not in the United States.

This does not mean that high inflation will not last long.

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Some economists believe that inflation could remain at a slightly high level of 3-4% for decades. Baby boomers are retiring and birth rates are falling. This is compressing labour, says former British central banker Charles Goodhart, and we are entering an era full of labor shortages, which means high prices. Central bankers pay attention to theory. San Francisco Federal Reserve Chair Mary Daly said immigration restrictions may need to be reviewed in order to address the issue.

There have been long periods of high inflation in the US before: In the 1970s, the US economy suffered three recessions in which the underlying inflation problem never went away. But monetary policy has since changed. During this same decade, central banks had multiple objectives: high production and the stability of employment and prices. Today, the Fed tends to prioritize price stability over these other mandates. This means that Fed Chairman Jerome Powell has a mandate to raise interest rates until inflation drops, even if the economy falls with it.

A global crisis

The United States is likely immune to hyperinflation: Yes, prices are high, but not unprecedented, and they have fallen in the last month.

Yet other countries are suffering. Inflation in Argentina is at its highest level in 20 years, at more than 70%, and the country’s central bank has raised its main interest rate to 69.5% as it tries to contain the surge in price. Turkey’s annual inflation rate, meanwhile, hit nearly 80% in June, its highest level in about two decades.
Long-term high prices tend to push some countries into periods of instability, which in turn raise global food and gas prices. They too impacting developing countries more severely and, according to a UN report, could undo progress made over the past decade in tackling climate change.


cnn

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