Inflation: What Goes Up, Must Come Down (Eventually)
When prices increase, purchasing power shrinks. That’s inflation in a nutshell.
While a moderate amount is indicative of a healthy economy, high inflation can have a significant impact on our personal finances. especially for those in or nearing retirement. If you’re saving for the next phase, inflation can have a detrimental impact on the money you’ve invested for your future.
According to many economists, there are three primary types of inflation:
- Cost-push – Occurs when prices rise due to higher production costs
- Demand-pull – The result of strong consumer demand for a product or service
- Built-in – When employees demand higher wages due to rising living costs
The U.S. inflation rate hit a 40-year high in May, exceeding 8% — and far outpacing the Federal Reserve’s 2% target. But is there an end in sight?
Inflation timeline: A 100-year look back
Common causes of inflation include the management of national debt, exchange rate changes, a growing economy and government regulation. Over the past 100 years, the U.S. had an average inflation rate of 3.22% per year, but this amount has varied wildly.
Here’s a look back at some historical eras of inflation and the events surrounding them:
1929-1939: During the Great Depression, stock prices plummeted, 15 million Americans were unemployed and nearly half of U.S. banks failed. This was a period of deflation.
1946-1948: Following WWII, inflation jumped more than 20% largely due to supply shortages and customer demand.
1965-1982: During the “Great Inflation,” a period of four economic recessions, inflation began an upward trend, reaching over 14% by 1980. The gross domestic product (GDP) — the monetary measure of consumer goods and services — averaged a staggering 4.8% during this period, contributing to the higher inflation. By the late 1980s, however, inflation eventually fell to only 3.5%.
1970s: “Stagflation” first emerged — a combination of high inflation and low output growth — due to misguided monetary policy and oil prices.
2008: In July 2008, oil prices jumped to $140 a barrel, doubling in cost form the previous year, pushing inflation up to more than 5% in a period known as the Great Recession.
2022: With Russia’s invasion of Ukraine, a steep increase in gasoline prices, the lingering COVID-19 pandemic and global supply chains disruptions, U.S. households are dealing with historically high inflation.
Will history keep repeating itself?
No one knows for sure. As you can see from the above timeline, the U.S. has endured and overcome worse inflation in its history. While the economy can rebound, it’s not uncommon to enter into a recession following high periods of inflation. In fact, economists are increasingly predicting that by 2023, the U.S. will enter into the next recession. But the good news is the world eventually adjusts.
In the meantime…
Don’t put your future on hold. Make plans to make the most of your retirement. A reverse mortgage from Reverse Mortgage Funding LLC (RMF) was designed exclusively for older homeowners and homebuyers to help you leverage the equity built up in your home — giving you the funds you need for financial peace of mind while, to extent possible, leaving your investments intact for growth. As with any mortgage, you must meet your loan obligations, keep current with property taxes, insurance, and maintenance.
Find out how a reverse mortgage can help your retirement finances weather inflation and beyond. Call RMF at (888) 277-1567 to learn more.
This content is sponsored by RMF, one of the nation’s leading reverse mortgage lenders. We are dedicated to helping older Americans live the retirement lifestyles that they imagined and deserve, in the comfort of their own homes. As a result of our commitment to providing an extraordinary and positive customer experience, we have earned a 98% customer satisfaction rating; a 5-star / Excellent score on Trustpilot; 4.5 out of 5 stars on LendingTree; and an A+ rating with the Better Business Bureau. Call (888) 277-1567 to speak with one of our experienced reverse mortgage specialists to learn about our retirement financing products and solutions.