If you’ve been paying attention to prices lately, they’re all doing one thing – going up. Inflation has always been around, but in 2021, it seems like it’s on overdrive. Usually, inflation rises at about two percent annually. This year, it’s already past five percent. What’s going on?
While many people may be pointing fingers, there are some tangible, real-world factors at play. So, let’s dive in and see why inflation is so high.
Comparing 2021 to 2020
One of the biggest reasons for a significant jump is that the country is reopening again. This time last year, many states were still under lockdowns and quarantines, and fear of the COVID-19 virus was rampant.
Simply put, a pandemic upended the economy, and overnight, everything changed. Because of that, many companies had more supply than demand, forcing them to lay off workers and shed inventory.
As the world reopens, the demand is skyrocketing, so prices are too.
Supply Chain Issues
When the world shut down, supply chains everywhere came grinding to a halt. Even though the United States is roaring back (although cases are back on the rise in summer 2021), other countries are still reeling from the pandemic.
We live in a globalized economy, meaning that issues in one location will affect prices in another. Many industries are facing shortages, leading to inflation spikes.
Shifts in Demand
If you had stock in toilet paper companies in February of 2020, you would have made a killing by April of last year. Today, toilet paper supplies are average, meaning that any price fluctuations are stable now.
In 2021, people want to get back to “normal,” which includes everything that shut down during the pandemic. Air travel, salon visits, nights out with friends – it’s all back on the table, and consumers are ready to spend. Industries that did well during the pandemic are slowing down, while those that shut down are ramping back up.
What Does All This Mean?
Right now, it’s hard to say how long this inflation spike will last. A labor shortage certainly isn’t helping, and rising cases may cause further lockdowns or quarantines in the coming months. Historically, the Federal Reserve has had to raise interest rates to cool the economy down, but it’s unclear if that will have to happen now.
If you’re concerned about inflation and the impact to your financial future, contact us today at (707) 542-1110 and we can help you navigate these stressful times.
Written by Matthew Delaney