Inflation’s impact on consumer wallets and rising interest rates
We’ve seen the staggering headline: the US is at the highest inflation rate since 1981.
It’s likely your wallet has felt the rise in prices at stores and gas pumps over the past few months, too.
According to an Associate Professor of Economy at UMD, there are a number of factors playing into this.
"This is not just a normal inflationary environment where the economy’s growing too fast," said professor Luiggi Donayre. "It is also associated to the disruptions of the pandemic, an economy that is recovering stronger than a lot of people anticipated, and also the effects of the Ukraine Russia situation."
Historically, these rates have suggested the potential of a recession.
Professor Donayre says there’s also evidence that the inflation rate we’re seeing now may be the highest we’re going to get
March has seen the largest rate of inflation so far, sitting and 8.5 percent, and what’s driving it are mainly energy prices.
"Most of the increase in energy prices, gas prices, for us was not a factored in previously, because the the war in Ukraine had only started at the very end of February."
So as gas is included in the price hikes for March, Donayre says the inflation rates have risen exponentially. Now, the price of gas is beginning to slow down, indicating we may have reached our inflation ceiling.
In any case, to fight that record high inflation rate, the Federal Reserve Bank is increasing interest rates to offset those impacts.
"So what the Fed wants to do is increase interest rates so that purchasing slows down," explained Donayre. "Ideally, this slows the economy down without necessarily bringing the economy to inflation."
For consumers wondering what to do now, there are a few ways to minimize spending as costs go up:
- Avoid big ticket purchases
- Opt for cheaper brands
- Choose alternative methods of travel to lower your gas purchases