What Causes Inflation?

Inflation occurs when the overall cost of goods and services rises. This isn’t just about the price of gas going up; it’s about a broad increase in costs for things like housing, clothing, and food. If you’re paying more for these essentials, inflation is likely at play.

Three key factors can drive up inflation:

• Demand exceeds supply: When the demand for goods and services outstrips supply, prices can rise.
• Increased production costs: Higher costs for producing goods and services can lead to higher prices for consumers.
• Excess money in the economy: An abundance of money can increase demand for goods and services, driving up prices.

Economists often summarize inflation as “too much money chasing too few goods.”

How Inflation Affects Your Money

Inflation reduces the purchasing power of your dollar, meaning you pay more for goods and services than before. For example, the price of a gallon of milk might rise by 30 cents in a year, or gas prices might increase by a dollar per gallon.

Inflation can also impact savings. The value of money in savings accounts decreases when inflation is high, even if interest rates rise. This can force you to dip into savings to cover higher costs. Similarly, fixed-income investments like bonds and CDs can lose value during inflationary periods.

Who Benefits From Inflation?

While inflation can hurt consumers, it can benefit some people:

• Borrowers: Existing loans become less burdensome as the value of debt decreases with rising inflation.
• Investors: Stock market and real estate investors may see gains as prices and property values rise with inflation.
• Businesses: Companies may benefit from increased demand and higher prices, although higher costs for materials and labor can offset these gains.

How to Protect Your Money From Inflation

While you can’t completely shield your money from inflation, you can take steps to mitigate its impact:

• Diversify your investments: Consider increasing your stock holdings and reducing bonds to better protect your portfolio.
• Budget wisely: Creating and sticking to a budget can help you manage expenses and reduce the financial strain of inflation.

The Bottom Line

Whether the economy is experiencing inflation or deflation, it’s always a good time to ensure your credit is in top shape. You can do this by regularly checking your credit score and report.

For expert mortgage services and advice, contact O1ne Mortgage at 213-732-3074. Our team is here to help you navigate your financial journey with confidence.