Extreme Inflation in the US – What You Need to Know to Protect Your Money

The word “inflation” was somewhat unspoken about in the United States for many years. Production levels, the unemployment rate, the price of energy, basic consumption products, and many other factors have always remained stable enough for people to carry a calm rhythm of life, without major worries.

But this reality changed after the pandemic, especially in 2021, and so far, this year. That “stability” was interrupted by the rise in the prices of gasoline, electricity, natural gas, rent, food, clothing, personal items, and many other factors that have reduced the purchasing power for many families in the US.

By January 2022, inflation exceeded the expectations of experts and consumers: it reached 7.5%, a record figure in 40 years. But what caused the rise in inflation? What are the projections for the future? How does this affect you and what can you do about it?

All these questions and many more will be answered in this article…

What caused the increase in inflation?

The pandemic! The crisis generated by COVID-19 not only sank the markets at the beginning, but continues to wreak havoc even after almost 2 years.

By this time, many people expected the economic recovery to be at its best, but despite the fact that many things have returned to normal and mass consumption seems to be at its usual levels, the reality is different.

The government has been doing what it can to keep the economy moving while the Fed moves to try to curb inflation, but the task has become more difficult.

You may wonder: What factors cause an inflationary index to skyrocket?, the response of the Federal Reserve Bank of San Francisco indicates the following:

  • Increased demand and low supply.
  • Increased production costs.

Sadly, the US and the rest of the world have been victims of those two factors for the last two years

With the distribution of the stimulus check, consumption remained relatively high, which meant a great inconvenience for thousands of companies that were forced to temporarily close or stop production, thus showing a problem in supply and demand.

Aside from that, there were also complications in the supply chain. According to The Wall Street Journal, seaport and warehouse slots are scarce, and that led to costly delays and increased shipping fees.

To this day, these problems remain a reality, and other complications continue to be added to the list.

Decline in the workforce

According to data from the Department of Labor, it is estimated that the pandemic forced the cut of 22 million jobs in the United States. In addition to that, many people began to live “comfortably” from the stimulus check, and several families were able to save extra money due to the closure of businesses and other activities that represented an extra expense for them.

Supply chain issues also contributed to inflation

Of course, the fear of COVID-19 and its variants, coupled with the issues mentioned before, have caused a decrease in the workforce that continues to represent a problem for businesses and the economy.


According to Bloomberg, the current unemployment rate is estimated at 4%, causing employers to raise wages as they try to fill millions of jobs and retain workers. Last year, compensation costs experienced the biggest increase in two decades.

How are you impacted as a consumer?

Without a doubt, consumers like you are the most affected by inflation. Going to the supermarket and realizing that you can only buy fewer products, or that you have to spend more to maintain your lifestyle, are great concerns that arise for families, and all this translates into a decrease in purchasing power.

According to the research firm, Moody’s Analytics, an average American household is spending $276 dollars more per month due to inflation.

Similarly, studies show that there are groups that are more affected than others. For example, middle-class households spend most of their budgets on gasoline, a resource that last December registered an increase of almost 50%. Used vehicles, which are very popular among middle-class households, also increased by more than 21%.

For those households with higher incomes, inflation also represented a higher expense, but in this case the increases are based on recreational activities and family outings. Labor Department data shows that this group is also spending more money on education, because on average they have more children under the age of 18 compared to other lower-income families.

Latinos have also suffered from inflation, and much of their spending is again due to used cars and the constant supply of gasoline. In the case of Asian families, inflation has impacted them at a percentage of 5.6, taking into account that, according to the Department of Labor, they tend to have higher incomes than the average American household.

According to Wells Fargo Economics, the age group that has been most affected by inflation is people between 35 and 44 years old, due to home related expenses, bank loans, recreational activities, vehicles and gasoline, personal and children’s education, and other factors.

Speaking of areas, according to The Wall Street Journal, the urban areas with the highest inflation rates are:

  • Atlanta.
  • Phoenix.
  • St. Louis.
  • Baltimore.
  • Tampa.

Housing costs, which make up almost a third of the consumer price index recorded by the Labor Department, were the single largest driver of inflation in these areas.

On the other hand, we have the urban areas where inflation had the least impact, and these are:

  • Washington, DC
  • Urban Hawaii.
  • Boston.
  • New York.
  • San Francisco.

All these factors have caused the Federal Reserve to change its strategy to curb inflation, which is why interest rates are expected to increase as of March, so that the super-low rates that once helped revive the economy are left behind and stop contributing to the increase in prices.

Now that you have a clearer idea of ​​how this situation is affecting you, it is important to ask yourself: will inflation continue to rise or is it a temporary situation?


How much longer will the rise in inflation last?

What was initially thought to be “transitory”, has come to stay for a long time. Even the Federal Reserve did not expect inflation to reach these levels, nor that its increase would be so persistent. In December 2020, the Fed had forecast that the consumer price index would be at approximately 1.8% by the end of 2021, but the reality was different…

This situation is likely to continue until the end of the year according to experts.

President Biden described inflation as “high” last February, but also said that he remained optimistic about his administration’s projections, indicating that by the end of 2022, the indices should be at much more normal levels.

On the other hand, BlackRock’s chief investment officer, Rick Rieder, said that as long as the high demand continues in different markets, “gaudy price gains are not standing in the way of demand

Kroll Institute’s chief economist, Megan Greene, said that inflation and the economy in general will return to normality, but clarified that “economists have to be honest when defining this as transitory”, since he believes that this situation could last, at least, until November 2022.

Treasury Secretary Janet Yellen also said inflation is expected to decline to acceptable levels in the mid-second half of 2022, defining “acceptable” as less than 2%.

A very important factor that must be taken into account is the recent outbreak of the conflict between Russia and Ukraine, which now involves dozens of countries around the world, including the United States.

The increase in the price of oil, energy, metals, and the scarcity of many other resources, undoubtedly represent a factor that is added to the inflation equation, and that could further slowdown the global economic recovery.

If you want to know more about this conflict and its economic impact in your pocket, we have a recent video in which we explain all the details.

What can you do to fight inflation?

Protecting your income and savings during times of high inflation is surely one of your biggest concerns. According to different economists and financial advisors consulted by The Wall Street Journal, some ways to protect yourself against inflation are:

Delay applying for social security benefits. According to Morningstar CFO, Christine Benz, one easy way to increase your inflation-protected retirement income is to delay filing for Social Security benefits.

Retirees can apply for these benefits at any time between the ages of 62 and 70, but for each month of delay, the payment increases. Benefits are also adjusted annually to reflect increases in the Department of Labor’s Consumer Price Index.

Buy inflation-protected securities

Independent economist, William Bernstein, says that inflation-protected securities give you a guarantee that you’ll get back your principal investment, plus inflation over 30 years.

These securities offer a fixed rate for up to 30 years, plus an inflation index rate that adjusts semiannually, and tracks the consumer price index for all urban consumers.

These securities can be purchased directly from the TreasuryDirect.gov website.


Duke University Business School professor, Campbell Harvey, says that commodities represent another investment with great potential during inflationary periods, given that the prices of metals, oil and agricultural products “tend to maintain their value or even to overcome inflationary increases.”

You can invest in commodities by buying shares of companies specialized in industries related to them, through future contracts, or also through Exchange Traded Commodity, or ETCs.

We know that inflation is a factor that concerns us all, and that is why it is very important to understand how it is generated and what we can do to protect our purchasing power and our investments in times like these.

Although we don’t know when inflation rates will normalize, at least for now, this knowledge will help you better understand how the market moves, and why the economic recovery may take even longer.

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