In the United States, there haven’t been significant amounts of inflation for about 40 years. We are entering the perfect storm that may change this including pent-up demand when the restrictions of quarantine are removed, a huge federal deficit, and a shift in the monetary policy of the Federal Reserve. With inflation on the horizon, many families are wondering how to prepare themselves for it to avoid being caught off guard.
What is Inflation?
Inflation is simply an increase in price levels. Ever since 2008, America has seen low inflation and even deflation in some cases. Outside of some sectors including health care, the average American household has not seen any unusual price increases recently.
This is about to change in 2021 though. Experts believe that Americans will see prices jump in several industries. In some cases, inflation is a good thing, and it can help to stimulate the economy. Moderate inflation can have benefits including encouraging businesses to expand and invest. Interest rates can go up, so banks are more likely to pay interest on checking accounts again. And most companies will start to pay higher wages.
The immediate effect will be higher prices, which can make it harder to stretch the budget of the average American. Knowing about inflation ahead of time and learning how to protect against it is the best way to keep your money safe during that time.
Inflation vs. Hyperinflation
While inflation is expected this year, hyperinflation is not a big concern right now. Hyperinflation is going to be any type of inflation of more than 50% and can be destructive to the economy no matter how long it lasts. Some people hear the word inflation and assume it means hyperinflation. This is not the case with what we will see with inflation this year.
Preparing for Inflation
There are a few steps you can take to plan for rising inflation and come out ahead of the game. Some suggestions include:
- Stock up on non-perishables: When the prices are rising, you may need to stock up on things when they are low. Purchasing things in larger quantities when they are on sale can help keep the damage of inflation lower.
- Responsible borrowing: If you need to get a home or a car, get them now while rates are low. Interest rates will go up with inflation, which can make these items more expensive later on. If possible, consider taking out a 15-year refinance to help reduce the amount you pay in interest.
- Consider new stocks: Options like real estate, commodities, materials companies, and hard assets do well with inflation.
- Near retirement, consider delaying your Social Security payments to get more each month that will help as prices go up.
Inflation is always an issue for the economy. But after the stimulus payments and other economic recovery measures put into play during 2020 and 2021, many experts believe there is major inflation up ahead. Being prepared for it and using some of the tips above can help to limit how hard you are hit by inflation when it shows up.
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