- Inflation, or the gradual increase in the price of goods and services over time, has a variety of positive and negative consequences.
- Inflation reduces purchasing power, or the amount of something that can be bought with money.
- Because inflation reduces the purchasing power of currency, customers are encouraged to spend and store up on products that depreciate more slowly.
What impact does inflation have on a family?
Furthermore, we estimate that lower-income households spend a larger portion of their budget on inflation-affected products and services. Households with lower incomes will have to spend around 7% more, while those with better incomes would have to spend about 6% more.
What is the impact of inflation on families?
Inflation has had an impact on families all around the country. Housing expenses are rising, as are grocery bills and petrol prices, requiring individuals to adjust their routines, stretch their budgets, or go without. It’s been particularly difficult for parents.
Tamika Calhoun is a Jackson, Mississippi-based housing counselor. She is also a mother of five children, and she is joining us from Jackson right now.
SIMON: And please accept my apologies in advance for the fact that these are really personal queries about the family finances. What are the current grocery prices? – Is there anything you’ve gone without?
CALHOUN: On my most recent trip to the grocery store, I had to prioritize what we needed over what the kids wanted. When the kids come out of school, they’ll want snacks and other items.
CALHOUN: So we’re down to attempting to stretch the snacks or purchasing a large bag of chips rather than individual bags since they’re so expensive now. Because I have such a large family, I spend close to a hundred dollars on a single supper. And…
CALHOUN:…It didn’t seem like I was spending that much money on a single dinner before, but now – especially the meat bits – it does. We have a large family, therefore we have to get the larger meat packs.
CALHOUN: It certainly does. We don’t go anywhere any longer because petrol is scarce due to its current high price.
SIMON: Are you scared that if you don’t go to work because you’re sick or fatigued, your family will suffer even more?
CALHOUN: Definitely – either I work or we won’t have a place to live – because we don’t live someplace where we get a subsidy, like we did previously, when I knew that if I lost my job, we’d be safe in low-income housing. The rent would be reduced to a more affordable level. However, we no longer reside there. I feel like I’ve finally arrived to a point where we can move on and support ourselves without the help of the government. And now, with everything going on, I’m wondering if I chose the worst moment to do this. This was not something I expected to happen. And I realized I was mentally preparing for it. However, my savings have been reduced as a result of having to leave work due to COVID.
CALHOUN: No, since I earn far too much money, despite the fact that it is insufficient to cover all of my expenses. However, they’re…
CALHOUN:…The government’s criteria haven’t changed. Even though the price is lower, you still can’t make more than this…
SIMON: You barely make enough money to support yourself and your family. However, you earn too much money to be eligible for government aid.
CALHOUN: That’s right. We would most likely be struggling more more than we are now if it weren’t for the pandemic EBT. We’ve been stretching that a bit.
SIMON: This is a government program that provides food aid to families that would otherwise be delivered through schools.
CALHOUN: They gave, I believe, two deposits, and each youngster received their own card. So that’s what’s been really helping us out with our grocery shopping.
CALHOUN: I make an effort to be optimistic. But, if I’m being honest, I’m hoping I don’t get COVID again, or that none of my children have COVID again. It’s terrifying to think that I’ll have to send them to school and then they’ll get sick. Then there’s the fact that I don’t have child care, so I’d have to miss work to be with them. It’s possible that I’ll have to quarantine with them. And if that happens, I won’t be able to use any of my PTO time.
SIMON: Tamika, you have five children and would go to great lengths for them. However, in order to assist them, you must remain healthy and well-nourished. Do you ever get hungry?
CALHOUN: There have been instances when I’ve made sacrifices in order for them to eat. And I try not to tell them I did it…
CALHOUN:…because I know they’ll try to hand up their meals to me. But they’ve never gone hungry simply because I find a way to feed them.
SIMON: You’re right. You make self-sacrifices for your children. All I can say is that I wish you the best of luck in the world.
CALHOUN: I appreciate that. I’m optimistic because I believe things will improve. As an example, even though the world isn’t turning around, I’m working on attempting to – since, as I previously stated, wages remain constant while prices rise. If that means finding a higher-paying work or getting a degree in something that will allow me to acquire a higher-paying job, I’ll just do what I can and hope for the best.
What exactly is inflation?
Inflation is defined as the rate at which prices rise over time. Inflation is usually defined as a wide measure of price increases or increases in the cost of living in a country.
What effect does inflation have?
The entire economy is impacted when energy, food, commodities, and other goods and services costs rise. Inflation affects the cost of living, the cost of doing business, the cost of borrowing money, mortgages, corporate and government bond yields, and virtually every other aspect of the economy.
What happens if inflation rises too quickly?
If inflation continues to rise over an extended period of time, economists refer to this as hyperinflation. Expectations that prices will continue to rise fuel inflation, which lowers the real worth of each dollar in your wallet.
Spiraling prices can lead to a currency’s value collapsing in the most extreme instances imagine Zimbabwe in the late 2000s. People will want to spend any money they have as soon as possible, fearing that prices may rise, even if only temporarily.
Although the United States is far from this situation, central banks such as the Federal Reserve want to prevent it at all costs, so they normally intervene to attempt to curb inflation before it spirals out of control.
The issue is that the primary means of doing so is by rising interest rates, which slows the economy. If the Fed is compelled to raise interest rates too quickly, it might trigger a recession and increase unemployment, as happened in the United States in the early 1980s, when inflation was at its peak. Then-Fed head Paul Volcker was successful in bringing inflation down from a high of over 14% in 1980, but at the expense of double-digit unemployment rates.
Americans aren’t experiencing inflation anywhere near that level yet, but Jerome Powell, the Fed’s current chairman, is almost likely thinking about how to keep the country from getting there.
The Conversation has given permission to reprint this article under a Creative Commons license. Read the full article here.
Photo credit for the banner image:
Prices for used cars and trucks are up 31% year over year. David Zalubowski/AP Photo
What three impacts does inflation have?
Inflation lowers your purchasing power by raising prices. Pensions, savings, and Treasury notes all lose value as a result of inflation. Real estate and collectibles, for example, frequently stay up with inflation. Loans with variable interest rates rise when inflation rises.
What impact does a price increase have on people’s lives?
Inflation raises your cost of living over time. Inflation can be harmful to the economy if it is high enough. Price increases could be a sign of a fast-growing economy. Demand for products and services is fueled by people buying more than they need to avoid tomorrow’s rising prices.
What effect does inflation have on income?
Yes, everyone is affected by inflation. Nonetheless, it has a wide range of effects on different people. Your way of living is determined by your income and expenses. People who have a high standard of life but not a high enough income will sometimes borrow money to make up the difference. Borrowing money becomes prohibitively expensive as inflation grows. This means that consumers either take out fewer loans or are unable to spend less money because it is being used to pay off debt.
Inflation may be both a benefit and a negative for those whose standard of living corresponds to their income. When inflation rises, your income usually rises as well, due to cost-of-living adjustments. This is true for those with a present source of income as well as those on Social Security. However, even as income rises, expenses rise as well. Inflation can have a significant impact on the standard of living of persons on a fixed income, such as seniors.
What are the five factors that contribute to inflation?
Inflation is a significant factor in the economy that affects everyone’s finances. Here’s an in-depth look at the five primary reasons of this economic phenomenon so you can comprehend it better.
Growing Economy
Unemployment falls and salaries normally rise in a developing or expanding economy. As a result, more people have more money in their pockets, which they are ready to spend on both luxuries and necessities. This increased demand allows suppliers to raise prices, which leads to more jobs, which leads to more money in circulation, and so on.
In this setting, inflation is viewed as beneficial. The Federal Reserve does, in fact, favor inflation since it is a sign of a healthy economy. The Fed, on the other hand, wants only a small amount of inflation, aiming for a core inflation rate of 2% annually. Many economists concur, estimating yearly inflation to be between 2% and 3%, as measured by the consumer price index. They consider this a good increase as long as it does not significantly surpass the economy’s growth as measured by GDP (GDP).
Demand-pull inflation is defined as a rise in consumer expenditure and demand as a result of an expanding economy.
Expansion of the Money Supply
Demand-pull inflation can also be fueled by a larger money supply. This occurs when the Fed issues money at a faster rate than the economy’s growth rate. Demand rises as more money circulates, and prices rise in response.
Another way to look at it is as follows: Consider a web-based auction. The bigger the number of bids (or the amount of money invested in an object), the higher the price. Remember that money is worth whatever we consider important enough to swap it for.
Government Regulation
The government has the power to enact new regulations or tariffs that make it more expensive for businesses to manufacture or import goods. They pass on the additional costs to customers in the form of higher prices. Cost-push inflation arises as a result of this.
Managing the National Debt
When the national debt becomes unmanageable, the government has two options. One option is to increase taxes in order to make debt payments. If corporation taxes are raised, companies will most likely pass the cost on to consumers in the form of increased pricing. This is a different type of cost-push inflation situation.
The government’s second alternative is to print more money, of course. As previously stated, this can lead to demand-pull inflation. As a result, if the government applies both techniques to address the national debt, demand-pull and cost-push inflation may be affected.
Exchange Rate Changes
When the US dollar’s value falls in relation to other currencies, it loses purchasing power. In other words, imported goods which account for the vast bulk of consumer goods purchased in the United States become more expensive to purchase. Their price rises. The resulting inflation is known as cost-push inflation.
What are some inflation examples?
Inflation as an example The price of milk is one of the most apparent instances of inflation in action. A gallon of milk cost around 36 cents per gallon in 1913. A gallon of milk cost $3.53 in 2013, roughly ten times more than it did a century ago.