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In the short term, high inflation can be the result of a hot economy — one in which people have a lot of surplus cash or are accessing a lot of credit and want to spend. If consumers are buying goods and services eagerly enough, businesses may need to raise prices because they lack adequate supply. Or companies may choose to charge more because they realize they can raise prices and improve their profits without losing customers.

But inflation can — and often does — rise and fall based on developments that have little to do with economic conditions. Limited oil production can make gas expensive. Supply chain problems can keep goods in short supply, pushing up prices.

On the quirk side, the coronavirus has caused factories to shut down and has clogged shipping routes, helping to limit the supply of cars and couches and pushing prices higher. Airfares and rates for hotel rooms have rebounded after dropping in the depths of the pandemic. Gas prices have also contributed to heady gains recently.

But it is also the case that consumers, who collectively built up big savings thanks to months in lockdown and repeated government stimulus checks, are spending robustly and their demand is driving part of inflation. They are continuing to buy even as costs for exercise equipment or outdoor furniture rise, and they are shouldering increases in rent and home prices. The indefatigable shopping is helping to keep price increases brisk.

Consumer goods

Inflation erodes the average person’s purchasing power. Everyone’s true inflation rate is different, because we all buy different products and services. 

You can expect to pay more for used cars and car rentals, furniture, airline fares, hotels and everyday essentials like groceries and gas. Used car prices rose 29.7% compared with last year, for example, while clothing costs 5.6% more. Housing and remodeling supplies are also sky high.

“All of this means your paycheck is not going as far as it once did unless your wages are increasing at the same pace, which has not been the case for most individuals,” says Steven Saunders, director and portfolio advisor at Round Table Wealth Management. 

That’s no reason not to spend money, though, especially after the past 15 months, says Marguerita Cheng, certified financial planner and CEO of Blue Ocean Global Wealth. “You just want to be mindful of the increased prices.”