Episode 61: Why Is Inflation So High?

Published: December 19, 2021 | Updated on: December 20, 2021

The question we’re answering today is, “Why is inflation so high in the year 2021?”

Well, there’s a couple of reasons.

A Stimulated Economy

One is that the economy has been stimulated by our Federal Reserve bank. Think about this as a bank that the government controls, keeping interest rates very, very low for a long time. When interest rates are low, people borrow money to buy things, companies borrow money to expand, and naturally, prices go up because there’s lots of purchasing going on in the economy. You might buy a home, you might finance a refrigerator or a car or something like that. It’s very stimulating to the economy, but sooner or later, when more people are buying things, prices begin to go up. That’s what has happened over a short period of time here over the last year, year and a half.

More Money, More Problems

The other challenge is because the government is spending so much money, they’re borrowing against our future, my children’s future, my grandchildren’s future. They’re borrowing against that. When the government does this, there is more money sloshing around in the economy, which means two things happen. One is, again, people buy things and prices go up. Companies spend money and prices go up. There’s also a concern that at some point we’re going to have to pay the piper. We’re going to have to pay that money back. So there’s pressure on the US dollar and our purchasing power goes down. That’s the big reason why inflation is high right now.

Takeaways

If you have a financial plan or an investment plan, you better be taking inflation into account and you better have investments that hedge against inflation so that if the cost of living goes up, the value of your investments goes up. To keep up with that increased cost of living, it’s very important to have the proper investment plan for inflation because it might be here to stay for a little bit.

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Thanks for joining me and I hope you found this information helpful!

P.S. If you enjoyed this topic and want to learn more, download your copy of our guide, “Inflation and Your Retirement”.

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