When Will Inflation Go Down? [+5 Tips to Overcome It]

When will inflation go down? We’re all asking that question these days. Inflation is on everyone’s minds these days, and for good reason. With the stock market continuing to head down, rental properties and the real estate market looking shakier and shakier, crypto retirement accounts being hit hard, and all of this with no end in sight, we need to understand inflation at a deeper level so we can weather the storm well.

There are many differing opinions on inflation, the causes, and when inflation will go down; but what is the truth about inflation?

We are experiencing record high inflation, with little signs of slowing down. 

So we must understand inflation at a macroeconomic level to be able to predict the future path of inflation.

In this article, we will discuss the basics you need to know about inflation, the influences on the current high inflation rate, some future factors that could make inflation worse, as well as some general economic factors that need to happen for inflation to go down.

What is Inflation?

Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.

It is measured by calculating the percentage change in price levels between two points in time.

When inflation rises, every dollar you have buys less than it did before. The average inflation rate in the United States since 1913 has been about 3%.

In other words, if you had $100 back in 1913, it would be worth about $3,000 today.

Those who own assets such as real estate and stocks, benefit more from a rising inflation rate as they may see an increase in the value of their assets.

Those who don’t own assets, see less value from a rising inflation rate other than the overall economy increasing in “value”.

If inflation increases too much, it can be detrimental everyone, but especially to lower and middle-class families as they see their purchasing power decrease substantially.

Why is inflation so high?

There are several reasons why inflation is high right now, and while the war in Ukraine gets the most media coverage, it’s not the most important factor causing higher inflation.

Now, admittedly gas prices have been on the rise due to the war in Ukraine (much of the European oil comes from Russia) and an increase in demand after the COVID 19 lockdowns began lifting; and this has had a ripple effect throughout the economy as it increases the cost of producing goods and services.

A major reason for inflation is that due to Covid lockdowns, there has been a disruption in the supply chain as manufacturers and suppliers have had difficulty getting materials and parts from across the globe.

This has caused prices to go up as companies attempt to secure supplies at any cost.

Lastly and most importantly, the FED (the Federal Reserve) has played a major role in this high inflation.

The FED is in charge of the money supply in the United States, and depending on how the economy is doing they either increase the supply of money supply or decrease it.

The FED has been printing money excessively to provide relief for businesses and individuals affected by Covid, and they have been buying up bonds at an incredible rate which artificially pumps up the price.

This has led to an increase in demand over what is available, which causes prices to go up.

When will inflation go down?

Inflation is expected to start going down when several economic factors begin to align.

The effects of the invasion of Ukraine are still playing out, but a few things we know for sure need to happen in order for inflation to go down.

First, the supply chain must be restored to normal after the COVID 19 pandemic shutdowns.

The ripple effects of those shutdowns were immense and led to an increase in the cost of shipping, which in turn increased the cost of goods to the end consumers.

Rising energy prices across the board haven’t helped that situation any.

Secondly, the FED (Federal Reserve) must continue increasing interest rates high enough that they kill off some of the demand.

They also must cease buying bonds so that the demand goes down there. The FED has artificially propped up the economy and now that they are having to stop, there will be pain involved for everyone.

Third, there must unfortunately be an increase in the unemployment rate. 

The economy needs to see less demand for goods, and as long as employment remains high, there will continue to be a constant stream of money chasing after that limited number of goods — we saw that with the incredible increase in used car prices as consumers sought better and better deals.

When there is less money chasing those goods, the prices will begin to come down.

It’s simple supply and demand.

How long will it take for inflation to come down?

It depends on how quickly the Federal Reserve bank decides to bring pain to the economy in the form of raising interest rates to be above inflation, and quantitative tightening (no longer buying securities to artificially inflate the economy).

Is inflation expected to drop?

Inflation is expected to drop when the Federal Reserve bank raises interest rates high enough that it slows the economy down enough to discourage expansion, and unfortunately for layoffs to begin happening in masse.

A high employment rate will be like a blockade to the inflation rate coming down because it means that plenty of people have money from those jobs, and more money means more is being spent, meaning more demand on goods and services.

The FED must crush demand in order to begin bringing the inflation rate down.

What causes inflation to go down?

Several factors can cause high inflation to go down.

First, we must understand that when the economy is doing well, there is less demand for goods and services as people have more money to spend.

This excess demand causes prices to go up, so on the flipside when the economy is doing poorly, there is less demand and prices go down.

If we want inflation to come down, the economy needs to start doing worse.

Second, when the supply of a good or service increases relative to the demand for it, prices will eventually go down.

For example, if a manufacturer produces a lot of a certain product, the price of that product will eventually go down as there is more supply than demand.

Lastly, when the government decreases the amount of money in circulation, this will lead to a decrease in prices as there is not enough money to purchase all the goods and services that are available.

How will the railroad strike of 2022 affect inflation?

With talks of an increasingly likely railroad strike, the continued inflation worries are only heightening. A railroad strike would completely disrupt the supply chain, as trains are a vital part of transporting goods across the country.

This could cause prices to go up even more as companies are forced to secure alternate transportation methods, which would be more expensive.

The transportation of cargo via freight rails is critical for businesses that rely on them to transport inventory from ports to warehouses and distribution centers.

The shutdowns would set off a chain reaction, leaving goods stranded without anywhere to go because retailers will be unable to deliver or collect items as planned.

According to Jonathan Gold, the vice president of supply chains and customs policy at the National Retail Federation, disruptions in shipping could have had a significant impact on retailers that rely on freight rails for delivery.

The disruption would not only disrupt daily life for millions of Americans, but it could also put a significant dent in the economy.

Freight transport would be halted in approximately a third of the country if there was a strike.

Last month, a nonpartisan panel appointed by the president made contract recommendations to force workers and railroad companies to accept.

However, because these suggestions did not address company penalties for missing time due to illness or family emergencies, the unions have rejected them.

If a strike does occur, commuter lines running between major cities and suburbs (like Washington, Virginia, and Maryland) would be primarily affected since those routes tend to operate on freight tracks rather than passenger trains.

If the strike occurs, expect the inflation rate to keep going up.

What Can I Do to Combat Inflation?

Personal finance is an incredibly important topic in times like this when the economy is in a recession, inflation is on the rise, costs are increasing across the board, the stock market is falling, housing prices carry uncertainty, and nobody knows when things will improve.

In times like these, focus on ONLY what you can control, and don’t focus on the macroeconomic forces working against you. You can work to protect your existing portfolio with things like high yield bonds or gold IRA’s, but the majority of your focus should be on the fundamentals of sound financial management.

So, what can you do to fight inflation and rising prices?

Budget your money

Making a zero-based budgeting plan is the best way to combat inflation.

When you allocate every dollar of your income to a specific category, you can see where your money is going and what areas need improvement.

This will also help you to be more mindful of your spending habits, and make adjustments accordingly.

While it may be difficult to make such a drastic change at first, it is well worth the effort in the long run.

When it comes to inflation, being proactive is always better than being reactive.

Pay off debt

When it comes to inflation, one way to protect yourself is to pay off any outstanding debt you may have.

When your debt load is low, it becomes much easier to withstand the financial storms around you.

To reduce your overall debt, you should create a plan that allows you to pay off your balances promptly, and allows you to pay as much additionally each month to get that debt off your back.

This can be done by setting aside a fixed amount of money each month to put towards your debts.

Additionally, make sure to avoid unnecessary spending and live within your means.

By taking these steps, you can ensure that you are well-prepared for whatever the future may hold.

Spend frugally

When it comes to fighting inflation, spending frugally is essential. Here are a few tips to help you get started:

1. Avoid unnecessary spending. By being mindful of what you buy, you can save yourself a lot of money in the long run.
2. Live within your means. It’s important to remember that just because you can afford something doesn’t mean you should buy it. Try to be practical with your spending and only purchase what is necessary.
3. Shop around for the best deals. If you’re not careful, you can easily spend more than you need to on everyday items. Shop around for the best prices and make sure to comparison shop whenever possible.
4. Buy in bulk when possible. Shopping at places like Costco and Sam’s Club can drastically extend your buying power (you can often save over 20-40% compared to typical grocery stores). Be prepared to stick to your shopping list and have a plan for storing the bulk items so nothing is wasted, and you’ll extend your purchasing power greatly. I gave some helpful tips for shopping at Sam’s Club in my GoBankingRates feature here. 

Create a side hustle

Having a side hustle is one of the best ways to combat inflation. 

By having an additional source of income, you can ensure that you are not as reliant on your regular paycheck. 

This can be especially helpful if you find yourself struggling in the current economy. Additionally, having a side hustle can provide you with some extra financial security in case of unexpected expenses.

There are many different ways to start a side hustle. If you’re not sure where to start, here are a few ideas:

• Start a blog and sell advertising space or affiliate products.
• Offer freelance services such as writing, design, or web development.
• Tutor students in various subjects.
• Sell goods or services online using platforms like Etsy or eBay.
• Start a home-based business providing services such as massage, pet-sitting, or child care.

Check out my full-length article on side hustles for more detailed information and ideas.

Take care of your mental health

It’s no secret that the economy is in a recession. And when times are tough, it’s more important than ever to take care of your mental health.

Unfortunately, many people end up neglecting their mental health during tough times, which can lead to negative consequences down the road.

Some of the most common symptoms of mental health problems during a recession include:

• Anxiety and stress – This is one of the most common symptoms, and is often caused by money worries and job insecurity.
• Depression – This can often be triggered by financial stress or unemployment.
• Substance abuse – This can be used as a way to cope with stress or depression, and can often lead to addiction problems.
• Isolation – People may start to withdraw from friends and family members, preferring to stay at home instead.
• Anger and frustration – These emotions can often be directed towards others, or be internalized.

It’s important to remind yourself that you are not alone in feeling this way. Many other people are also struggling with their mental health during this time. 

If you are experiencing any of the above symptoms, it’s important to seek help from a professional therapist or counselor. They can assist you in getting your life back on track.

And remember, you are more important than dollars, bank accounts, or your job. Prioritize a positive mental attitude so you can weather any storm.

Conclusion

As you can see, inflation is a complex economic issue that is impacted by many factors.

So when will inflation come down? 

While it is difficult to predict exactly when high inflation will start to come down, most economists agree that the FED will have to raise interest rates to be above the current rate of inflation, begin decreasing the purchasing of bonds (quantitative tightening), and the supply chain issues will need to be resolved. 

This will help to stabilize the economy and bring down the level of inflation over time.

As far as when this happens, projects are that it will occur over the next few years, but the sooner the better for all of us.

Let me know if you have any questions or want more information on any of this.

Thanks for reading!