Inflation: What is Happening?
By Arkansas Next on Friday, March 31, 2023
Just about everyone is talking about inflation right now. You’ve probably heard adults in your life complaining about the price of eggs and gas, for example, but what’s the big deal? Let us explain…
At the time of publication, the rate of inflation in the U.S. was 6.5%
That means…
An item that cost $5 last year now costs $5.33
An item that cost $100 last year now costs $106.50
And while that might not sound bad, here’s why it can cause stress nationwide:
Let's say Michelle has $1,000 in takehome pay. Here’s her already lean monthly budget:
RENT: $500
UTILITIES: $100
SAVINGS: $50
GAS: $100
GROCERIES: $200
WANTS/ACTIVITIES: $50
=$1,000
But now, utilities, gas, groceries and wants/activities are all costing 6.5% more per month. See what happens:
RENT: $500
UTILITIES: $106.50
SAVINGS: $50
GAS: $106.50
GROCERIES: $213
WANTS/ACTIVITIES: $53.25
=$1,029.25
-$29.25
That’s more than Michelle has in her budget. She’s left with three options, none of which are ideal:
- Cut something from her monthly budget; the first things to go are usually wants and activities.
- Cut back on how much money she saves each month or use her savings to absorb the overages
- Use a credit card to absorb the overages
While it may not seem like a huge increase, in the long run, inflation causes people to cut back spending on luxuries or delve into credit or their savings to keep up with the cost of goods.
