Inflation at its core is the increase in prices for goods and services, and the decrease in purchasing power of currency. In moderation, it is a very healthy mechanism for growing economies. As a country we always are aiming for 2.00% inflation annually. But when it gets out of hand, what can be done to fix it?

Before we address where we are, we should talk about how we got here. Over the past few years, the pandemic changed our daily lives drastically leaving us inside our houses spending nearly nothing for a couple of years. Not to mention the multiple rounds of stimulus checks that were helpful in upping Americans bank accounts.

Not only were Americans padding their bank accounts during this time, but we also became very eager to spend again on the experiences we used to have access to. Those vacations, big purchases, and everything in between got put on the back burner.

Here is a look at how inflation has changed over the past few years:

When we returned to a more normal routine Americans were willing to spend in record numbers, causing companies to raise prices to adjust for demand. That’s how we got here, but how do we go back to 2020 type numbers?

Federal Reserve

“The Fed” as you may have heard them called, are responsible for setting interest rates, managing money supply, and regulating financial markets.

Typically when inflation is on the rise, the fed will raise interest rates, and decrease the money supply by selling government bonds and raising the amount of money that banks need to keep on hand.

They do this in an effort to slow down the economic activity in the country because it will bring interest rates back down, and inflation along with it.

They are the largest governing force that has the ability to set the tone for the direction of interest rates and inflation in the country.

It is important to know that these changes do not happen overnight, it takes quite a bit of time for the changes they make to filter through the economy and start to slow things down.

Conclusion

While inflation cannot be reversed quickly, we have governing bodies who are dedicated to making sure these factors are closely managed and kept under control.

The past few years have been an anomaly, and expect there to be some more time before we can recover from these high inflation numbers. Albeit we are making progress and heading in the right direction.