Inflation remains as hot as the weather, with prices for food, gas, travel, houses, lumber, toys...you name it....all continuing to soar to the highest levels in decades. After annual inflation grew at a 40-plus year high for the last two months, consumers are asking how much higher will prices go? The answer depends on who you ask. Some economists are now predicting a downturn in prices for many goods in the near future, as months-old supply chain backups finally catch up and retailers end up with excess inventory to sell off. Target recently reported this scenario, announcing plans to slash prices on products it overstocked during the past year.
While price relief on some items may be on the horizon, turning the inflation ship around will not be fast or easy. "I understand why some economists see things as somewhat self-correcting," says Bill Dendy, CPA and personal finance expert with Raymond James. "As supply chain issues get behind us, and as consumers spend their extra COVID money, go back to work and see inflation, their demand will actually go down some, which could ease prices and lead to a softer landing."
But Dendy warns the wild card is the Federal Reserve's response to rising inflation, and whether that will push the economy into recession. "The Fed is taking pretty aggressive action right now against inflation...which I liken to trying to slow down a speeding car," he says. "They're pushing the brakes pretty hard, but the hope is that doesn't cause us to swerve off the road."
Another concern moving forward is a potential wage-price spiral, which would extend inflation woes. "We could have a new fight for wage increases, as wages have not gone up as much as the cost of things we're buying with those wages," says Dendy.
Even the source of this inflation is the subject of debate. This week, Federal Reserve Chair Jerome Powell discounted the war in Ukraine as the primary cause of price hikes, as the Biden administration has claimed. Powell told a Senate committee that inflation was already a growing problem before Russia invaded Ukraine earlier this year.
Regardless of what economists say or predict, Dendy believes its important for you to examine your own finances and make sure you have some breathing room. "Economic science is not precise," he tells KTRH. "They can tell us the odds of one result or another, but it's still a roll of the dice how it's going to come up."
"All we can do as individuals is make sure that we're going to be okay, whatever is served up next."
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