What Inflation Is Doing That Most Are Just Starting To Feel

Inflation is a funny thing. You don't really notice it until a year or so later. At first your used to the normal 2% increase in prices across the board year over year. Maybe even 5% doesn't seem to effect you that much. However after well over a year now of record high inflation people are starting to feel the pinch and worst of all it's only just begun!

It wasn't until 2022 when the fed started to increase rates and we all know there's a good 12-16 month delay factor to when the fed does something to when you see the results of it. You could also say the same is true with inflation but it acts a little faster. Compounded over month and months however and you start to see it in those tiny payments and big time on those large payments.

Big Tickets

It's said that on average for every American it has added $800 of expenses on to their balance every month! Or a total of at least $9,600 a year in inflation costs for people. I'm sure you didn't get that big of a rise right?

Most of that cost comes in for home loans that not only say a massive spike in housing costs but also the mortgage interest rate.

Looking to buy a new car? Well you're going to feel that one as well. Not only have prices of cars increased to the point that only 8% of new cars being built come in under $30,000 but your car loans interest rate just went up. People are now seeing a $43 spike on average on their new car buy payments. So you might be thinking a used car is in order. You'll still be feeling about a $23 a month increased hit compared to before.

Put it on credit they say... Will for the average person they are now seeing $19 a month more in interest month over month on a $5,474 debt. Yep read that fine print they can adjust that interest rate on you at any point.

The Hidden

If that wasn't bad enough you still have everyday living costs which have been hit hard with inflation. It's said that if you take whatever you make an hour (In this case let's go with $18 a hour) remove $4.50 of it just for inflation (buying the same stuff you did last year) and that's your real pay today. So if you didn't get a $4.50 raise per hour you just fell behind big time!

When you break that down it's $750 a month, $180 a week plus all those extra costs above. Now that's really starting to add up! And guess what it's still not over! Inflation is still increasing at a rate too high and it does have the potential of coming back even worse.

Recession Is Off?

The Fed has said they feel that a recession simply won't happen now. (To be fair I think we already had one or are currently still in one) but it's a wonky thing with a lot of random moving parts which is really confusing things. While some sectors are fine in terms of Jobs, Job growth and the stock market being up. Other sectors like cost of living, cost of loans and general cost of business is skyrocketing and being drastically offset now.

I do suspect another 6 months at least of high inflation and most likely a return of it. Unless the FED really kicks rates up and keeps them high to the point we see negative inflation again like we have seen in recent pasts. It's still too soon to see what direction it goes and I believe early next year is when the story will be told. A hard recession or things somewhat returning to "normal" with low inflation and higher interest rates for a period of time.

What's really crazy about the times we are in now is wealth inequality actully right now more than in the last 15 years be able to return into the middle class. With lots of jobs, higher paying jobs and the ability for people to put money away and earn 5% in a high yield savings account or invest into other assets money can more freely flow to people who normally would have been getting zero interest in their bank for the last few years.

Understanding The Flip Flop

As someone growing up watching investors there was always a flip flop. Some people would say invest in the stock market heavily while others would say invest into assets instead such as homes.

Low rates and fast economy growth means more people working which means more competition. That's a huge benefit to companies that can get away paying lower rates because so many people are working and have the same skill sets. At this point is when you want to be asset rich. Low rates means you won't be earning much in your investments/savings while assets would still increase in values while income remains low.

With extremely low rates for so long it highly encouraged people to take of massive amounts of debt. Home buys, new car buys, credit card debt, student debt. While it's fine for maybe a year or so when inflation kicks in we see a some rather hard times kick in.

For that to make sense it means that while interest rates where crazy low there could be many projects that perhaps where bad investments but being they had to pay next to zero in interest on their loans they got away with it for a little while. Or the classic case of the banks giving out home loans to people that maybe shouldn't have taken one out or at least not as large of one. As interest rates hike we start to see these projects and buys collapse. Causing foreclosures, bank crashes, small business crashes and other projects fall through.

Core Inflation

The number not talked about in the news is what is know are CORE inflation numbers. That number still comes in a 4.8% and is targeted to be at 2% In fact it's hardly down at all. It's been hovering at around 6%+ for a good year and has only fallen to 4.8% meaning we still have a good while to go.

With any of this I think It's important to note that dollar cost averaging in is one of the best proven investment options. It might be boring but it seems to always get the job done.
*This article is for entertainment purposes only and is not financial advice.

Posted Using LeoFinance Alpha