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Just How Worried Should You Be About Inflation?

A sobering look at what's really going on with the economy

Cut out of a paper face with a penny inside
Tyler Comrie

The problem with inflation isn’t just inflation. It’s how we react to inflation.

Inflation reeeeallly bothers us. More than anything else right now, and that’s saying something. Americans say inflation is a bigger problem than climate change, gun violence, racism and COVID, according to a recent Pew survey.

Are we right to be so worked up? Let’s take a closer look.

Has inflation peaked?

Possibly, even if it doesn’t seem like it. The U.S. consumer price index — what we pay for all items—is still on the rise. Freshly reported June numbers show a 1.3 percent 30-day increase, and a total 9.1 percent rise over the past 12 months. (Is it any coincidence that guys our age have flashbacks to the economic feelings of our youth when that annual rate is the highest on record since … wait for it … 1981?)

The news isn’t all bad, however. Demand for crucial things like homes and vehicles appears to be falling, which eventually leads to falling prices as well (even if they haven’t fallen just yet). Existing home sales are down nearly 9 percent from a year ago, according to the National Association of Realtors. Used car prices, which went supernova during the pandemic, are starting to drop. Wholesale car prices fell each month since January — a good sign, since used car prices have been blamed for a significant chunk of inflation in general.

Oh, and what about gas prices — the thing that seems to anger people the most? Falling. As of July 15, AAA data shows the average gallon going for $4.58 in the U.S. One month earlier? $5.01.

Are our fears and anger warranted?

It’s easy to be angry about higher gas prices. But what does that anger get you? The only thing inflation should mean to you is math. Simple math to quantify the current financial impact on your life. 

  • Inflation has shown signs of peaking. Historically it has always, without fail, been a phase.
  • Unemployment is 3.6 percent nationwide, which is crazy low.
  • Your personal numbers never lie. Your June 2021 bank statement “withdrawals” total compared to your June 2022 “withdrawals” total is your personalized, real-world inflation rate (excluding unexpected expenses like a car repair).
  • Now work out some real numbers. Example: If you’re now paying, say, $1 per gallon more for gas, and you fill up once a week, that’s probably an extra $20 per week. Hell, let’s say five fill-ups a month. That’s $100 extra per month.
  • If you used to shell out, say, $1,000 a month on groceries, let’s say that’s risen to $1,200 in the past year, an extra $200 (if we want to be completely literal — the 12-month inflation rate for “food at home,” i.e. groceries, is 12.2 percent, so an extra $125).
  • An extra $225 per month for someone making $75,000 a year (about $2,900 gross take-home per paycheck) is roughly a 3.5 percent hit. 

Inflation is real, it’s material, and for some people it’s a serious hardship. What can you do? The answer, which nobody wants to hear, is to cut expenses. For a family of four, cutting a few dinners out per month could easily slice $250 off your expenses without changing one other thing.

More glass-half-full news: Your salary will probably go up this year. A survey of more than 1,100 HR and compensation managers by Salary.com shows that about three-quarters of U.S. companies expect to offer raises of 4 percent or more in 2022. 

If you swing a 4 percent raise, go back to the $75,000/year example earlier. That bumps you to $78,000, which comes out to about $250 extra per month. That’s real, that’s material.

Look for good news in other areas, too. If you’re a homeowner, bet you’re not complaining about rising home prices. If you have a 401(k), sure, the market is down, but that means your contributions buy in at a discount. You’re still young enough for those things to matter down the road.

Maybe it’s time to ease our rage at the gas pump, do some of that simple math, and figure ways you can even out your expenses and push that income higher.

Remembering the stressful economies of our youth may color how we feel today. But our parents made it through OK back then — and we’ll do the same today.

In other words, let’s all exhale.