Navigating the Money-Saving Challenges Presented by Inflation

It’s the thief who stole money from your dresser drawer.  It’s also the individual responsible for weakening the value of each dollar in your wallet for over two years.  Who is this guy?  His name is Inflation, and he’s been hurting us all and causing unnecessary money-saving challenges, particularly for seniors on fixed incomes. 

What is Inflation?

The simplest definition of inflation is a general rise in prices across the entire economy.  Put another way, it is a weakening of the dollar, meaning that the dollar might now buy only 93 cents of what it bought last year and just 85 cents worth of goods a year after that. 

What causes it?

Too much money chasing the same amount of goods causes inflation.  I used to use this example with my high school students: if a plane flew over this town and dropped $500,000 in everyone’s backyard tomorrow, what would happen to the price of milk, pizza, or anything else around here?  Why would the pizza shop keep a large pie priced at $10 when everyone has so much money?  Well, he wouldn’t. 

Biden’s Third Stimulus

Two stimulus programs passed with bipartisan support under President Trump in 2020.  The bills were designed to assist Americans with the money-saving challenges of the Covid-19 pandemic.  Economists generally agree they saved us from a huge Depression, though most also admit the relief was larger than needed and persisted for longer than required.  Some provisions like paying people more not to work were even downright detrimental by creating labor shortages.  But if the two weren’t enough, President Biden and Democrats marshaled an unnecessary third bill through Congress in March 2021 without a single Republican vote, at a time when the pandemic was under control and the economy was rebounding nicely.  More checks went to everyone.  Inflation immediately set in.

The Stats

Note, when President Trump left office in January 2021, inflation was essentially nonexistent at 1.4%.  Two months after the third stimulus bill passed, it hit 5.0%.  It was 7.0% in November 2021.   At the one-year mark in March 2022, it touched 8.5%.  It stunned all by reaching 9.1% in June 2022, a 40-year high.  The inflation rate has come down but in a very painstakingly slow fashion.

What’s one to do?

Of course, if one’s income rises at the same or a greater rate than inflation, it’s not a big deal.  But that is rarely the case.  True, those on Social Security receive a cost of living adjustment (COLA) every January, but that comes after already having paid higher prices, and no one gets ahead.  People merely keep from falling further behind.

The Fixed Income Predicament

Prices are dropping as The Federal Reserve Board’s war on inflation continues.  The Fed’s interest rate hikes have intentionally made it more expensive for people to borrow to purchase big ticket items.  As people buy fewer homes, furniture, boats, and cars, prices drop.  It’s welcome news for those on fixed incomes, mainly seniors, as they have no way to increase the amount of money coming into their household.  Younger folks can pick up more hours at work or take a side gig, choices seniors usually cannot make.  The money-saving challenge is also easing for seniors as interest rates on high-yield savings accounts (see previous article on this topic) and CDs are finally rising, some reaching 5%.

So, while inflation has been and continues to be a money-saving challenge, we can remain hopeful the worst is in the rearview mirror and that this thief has been removed from our wallets.

Jeff Szymanski works in political communications for AMAC Action and previously taught high school economics, history, psychology, and sociology.  He writes frequently on the issue of Social Security’s challenges.