How to help beat inflation in 2022

Financial education, Saving smart

You’ve probably noticed higher prices lately at the gas station and the grocery store. According to the Consumer Price Index, the cost of goods and services in the United States rose by 7 percent between December 2020 and December 2021. That’s the largest yearly increase since 1982, and it’s got everyone talking about inflation.

What exactly is inflation? What’s are ways to cope with higher prices? We’re here to help you find answers.

Here’s what we’re going to cover:

  • What is inflation?
  • Why are inflation rates so high right now?
  • What does inflation mean for you?
  • Four tips for helping to beat inflation in 2022

Key takeaways

  • Inflation is the increase in the price of goods and services over time. When demand for consumer goods is high and supplies are low, prices rise.
  • The current high inflation rate is largely a result of the economic and supply chain impacts of the Covid pandemic.
  • Reducing your spending, setting aside an emergency fund, investing in your career, and asking for a raise can all help you cope with inflation.

What is inflation?

Inflation is the increase in the price of goods and services over time. The federal government tracks this information with its Consumer Price Index, which regularly looks at costs of food, housing, energy, medical care, and several other categories.

Typical inflation rates in the United States run between 1 percent and 3 percent a year.

Why are inflation rates so high right now?

Why the big change this past year? If you guessed that it has to do with the Covid pandemic, you’re right. The high inflation rates we’re seeing right now are caused by several things, but it’s mainly a matter of supply and demand.

When the pandemic began in 2020, many people lost their jobs or had their work hours reduced, and had to be careful about spending money. But with an improved job market and stimulus programs that put cash into people’s hands, consumers now have more money available and are more likely to spend it. As the demand for products increases, supply decreases, and companies raise their prices accordingly.

But higher demand isn’t the only reason for low supplies. Supply-chain issues related to the pandemic have affected just about everything that’s manufactured or produced. (Remember when you couldn’t buy toilet paper?) Factories and other businesses are short of staff. Shipping containers full of products get stuck in ports. Goods haven’t been reaching the market as quickly as usual.

The combination of these supply-chain problems with people having more money to spend has led to a strain on supplies and higher prices for consumers. And now with the Russian invasion of Ukraine, we could see increased global supply shortages of major Russian and Ukrainian exports—meaning even higher prices at the gas station and grocery store.

What does inflation mean for you?

First, it means that you’re probably paying more for the things you buy. But it can also affect what it costs you to borrow money.

When inflation is high, the Federal Reserve System (the central banking system of the United States) raises the federal funds rate. This increase is intended to limit inflation by making it more expensive for banks to borrow money. Banks, in turn, charge more to the businesses and individuals who borrow money from them. That means you’ll see higher interest rates if you try to take out a loan this year.

Four tips for beating inflation in 2022

No one can say for sure how long the current trend will last. Some financial experts predict that inflation will slow in 2023; others say it is likely to continue for several years. Meanwhile, here are some things you can do to ease the strain on your wallet.

1. Review your budget

Sit down with your monthly budget and look at where your money is going. Inflation has a big impact on the price of groceries and gas, so look for ways to cut down on those expenses. Instead of driving, you might try walking or biking to save gas. At the grocery store, you could choose store brands with lower prices. Experian offers more money-saving ideas in this article.

2. Build an emergency fund

It’s always a smart idea to have savings set aside for emergencies. This won’t directly protect you from inflation, but it will make it easier to deal with price increases. Rather than spending extra cash you have on hand, consider putting that money in your emergency fund.

3. Invest in yourself

Another great use for extra funds is investing in yourself to increase your earning power. You can do this by enrolling in continuing education courses or career development training. Look for opportunities to learn in-demand skills. When you can meet today’s business needs, you’re more valuable to employers.

4. Ask for a raise

As the cost of living goes up, a raise can help you meet living expenses. Some companies offer yearly wage increases to offset inflation, so start by asking your employer if there are plans to do this. If not, it’s time to start negotiating for a raise based on merit. Remind your boss of all your contributions at work and the many ways you’ve helped improve the business.

Oportun: Affordable lending options designed with you in mind

Now that you understand how to beat inflation, learn about how Oportun can help you build a better future. If you’re looking for affordable credit options, we can help. Visit our homepage to learn about:

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Sources:

Bureau of Labor Statistics. Consumer Price Index—January 2022

Consumer Financial Protection Bureau. Explaining how inflation works

Experian. How to survive inflation

Forbes. What happens when the Fed raises interest rates?

Investopedia. Timeless ways to protect yourself from inflation

The New York Times. Expert answers to readers’ questions about inflation

The New York Times. How the supply chain broke, and why it won’t be fixed anytime soon

The New York Times. Inflation has arrived. Here’s what you need to know

The New York Times. What does Russia’s invasion of Ukraine mean for the U.S. economy?

 

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