Have you noticed that your grocery budget doesn’t stretch as far as it used to? Or that it takes a lot more money to fill up your car? It might be because of inflation.
Inflation is the overall upward price movement of a broad group of products and services, like food, gas, rent, healthcare and utilities. Inflation can have both positive and negative impacts, depending on how high it goes and how quickly it rises.
Prices typically increase due to rising production costs associated with raw materials and labor, market disruptions, higher demand, and certain fiscal and monetary policies. When prices rise at a rapid pace, they reduce consumers’ purchasing power and can devalue currencies. High levels of inflation can also interfere with saving and investment.
Economists typically divide the causes of inflation into two categories: Demand-pull and cost-push inflation. But in practice, all of the forces can work together to create a spiral of increasing prices that may seem impossible to stop.
When prices rise due to cost-push inflation, companies pass along those higher production costs to consumers by increasing their product’s price. This can lead to consumers postponing purchases and shifting where they shop, for example shopping at dollar stores or comparing prices at Costco or Walmart, which in turn can fuel further price increases. This type of “sticky” pricing exacerbates inflation and is one reason why it’s difficult to know exactly what the rate is. It’s important for families to monitor inflation and see if their spending habits can keep up with the rise in prices.
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