1. Money
  2. Impact of Inflation

Inflation: What Are Its Effects, Impact, and Why Is It Bad?

What’s the impact of inflation in the US, and how will the rising prices affect you?
Lauren Bedford - Finance Writer
Written by

Lauren Bedford

Lauren Bedford - Finance Writer
Written by
Lauren Bedford
Finance Writer

Lauren is a published content writer who is passionate about helping and informing others through her content. In the last 5 years, Lauren has written about a range of subjects, including business, technology and finance.

Learn more about our editorial process

Derek Sall - Personal Finance Expert
Reviewed by

Derek Sall

Verified by an expert
Derek Sall - Personal Finance Expert
Reviewed by
Derek Sall
Personal Finance Expert

Derek has a Bachelor's degree in Finance and a Master's in Business. As a finance manager in the corporate world, he regularly identified and solved problems at the C-suite level. Today, Derek isn't interested in helping big companies. Instead, he's helping individuals win financially—one email, one article, one person at a time.

Learn more about our editorial process

Deepti Nickam - Finance Writer

Deepti Nickam

Deepti Nickam - Finance Writer
Deepti Nickam
Finance Writer

Content writing and marketing professional with 4+ years of experience in the B2B and B2C sectors. Deepti has written about several subjects, including finance, project management, human resources, and more.

Learn more about our editorial process

April, 26 2023

Learn more about our editorial process

18 min
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Have you noticed the extra dollars on your food bill? Or those rental prices slowly creeping up? Your mind isn’t playing tricks on you. 

Why Trust Us
Advertiser Disclosure

Inflation is the number one culprit behind steep food prices, eyebrow-raising energy bills, and the insurance brokers committing daylight robbery.

Sure, the economy is starting to lick its wounds, but we’re not out of the woods just yet—far from it.

This article will tell you—

  • Why inflation is so high in the US.
  • How inflation has impacted the nation.
  • If inflation affects you. 
  • Who benefits from inflation. 
  • If the US is heading for hyperinflation. 
  • How to protect yourself. 

In 2012, the Federal Reserve set an official inflation rate of 2% to keep prices under control. But annual inflation currently stands at 5%. 

If not managed, inflation can only go one way—hyperinflation. 

Yes, it’s real—and plenty of countries with high inflation have experienced a complete economic collapse firsthand. 

Want to see the inflation by country? Download our inflation report here

To avoid meeting the same fate, we need to know what triggers inflation—and make sure we don’t fall into the same traps. 

What is Inflation?

Inflation refers to the phenomenon where the general level of prices for goods and services in an economy is rising over time. 

Causes of inflation include: 

  • An increase in demand for goods and services.
  • A decrease in supply.
  • Changes in the money supply.

And how does inflation work?

When inflation hits, the purchasing power of currency goes down—meaning that the same amount of money can buy fewer goods and services than it could before. 

This can have a huge impact on consumers, businesses, and the overall economy—so it’s closely monitored by policymakers and economists to ensure stable economic growth.

Why is Inflation So High In the US?

Prices don’t just shoot up from nowhere. So why is inflation so high right now?

In 2020, the world was violently rocked by the pandemic. We were left with record-breaking unemployment rates, a stock market crash, and a recession to top it all off.

Just as we were getting back on our feet—boom, we were hit with rising interest rates and an outbreak of war across the pond. 

And as if that wasn’t enough, inflation has come to visit like a distant relative who’s long outstayed their welcome. 

But what causes inflation and how exactly did we get to this point? Let’s break it down—

Supply and demand 

  • The Covid-19 pandemic caused worker shortages, shipping chaos, and disruptions across the supply chain. 
  • Demand for goods grew steadily as the government fed new money into businesses and households to keep them afloat. 
  • As demand began outweighing supply, companies started bumping up their prices. 

Interest Rates 

  • Instead of reducing the growth rate of money, the Federal Open Market Committee (FOMC) began boosting interest rates to control growing demands. 
  • In early 2022, the FOMC raised rates to a total of 3.75% in less than nine months to try to return to its 2% long-term target. 
  • The Fed increased interest rates (yet again) by 25 points in the last month, despite the ongoing banking crisis. 

Spending Growth 

  • While the Fed increased interest rates, public spending continued growing. 
  • In February 2023, consumer spending increased by $27.9 billion (0.2%).
  • If spending continues to creep up, the Fed could be forced to boost interest rates even more—and if spending drops, we could have another recession on our hands. 

Geopolitical Tensions 

  • The Russia-Ukraine region is a key producer of essentials, like fertilizer and wheat. 
  • The invasion of Ukraine sent ripples across already fragile supply chains—interrupting production and pushing up prices. 
  • Rising costs led to an increase in global inflation of 1.3 percentage points.

Impact of Inflation: How Bad is Inflation Right Now?

Last year, seven-in-ten Americans viewed inflation as one of the biggest problems in the US. 

And judging by the monthly Consumer Price Index (CPI), those worries aren’t unfounded. 

The CPI measures changes in prices for goods and services. Their recent data on inflation rates show we’ve moved away from the 9.1% peak, but we’re much higher than stable pre-pandemic rates. 

Here are some key figures to make sense of this inflation rollercoaster ride: 

  • All tracked items increased by 0.1% in March and 5% in the last year.
  • All items (excluding food and energy) went up 0.4% in March after rising 0.5% in February. 

If those rising prices have escaped your attention, let’s find out what’s causing you to go over budget. 


  • Consumer food prices increased 9.5% from February 2022 to February 2023—down from 10.1% in January and 10.9% in December 2022. 
  • Food was unchanged for the current month but is up 8.5% on a yearly basis.
  • Food prices away from home rose 8.4% from February 2022 to February 2023.
  • Cereals and bakery products went up 13.6% over the last year.
  • Fruit and vegetables increased by 2.5%, while non-alcoholic beverages rose by 11.3% in the last 12 months. 


  • The index for housing was the largest contributor to the monthly items increase. 
  • The housing index went up by 8.2% over the last year, making up over 60% of the total increase in all items (apart from food and energy). 
  • Housing has risen by 0.6% for the current month of March. 


  • The index for electricity rose by 10.2%, and natural gas increased by 5.5% over the last year.
  • However, gasoline and fuel dropped 3.5% in March and are down 6.4% over the last 12 months. 
  • Energy services (electricity and natural gas) were also down 2.3% on the month (but up 9.2% on the year). 


  • New vehicles had a monthly increase of 0.4%—up 6.1% over the last year.
  • Motor vehicle insurance also skyrocketed by 15% in the last 12 months. 
  • But used vehicles fell 0.9% in March and down 11.2% over the year.

How Does Inflation Affect You?

Chances are you’re going to have an encounter with inflation at some point. Whether at the grocery store or next time you chat with your landlord. 

So, how will you be affected? 

Money Savers 

Saving money to protect yourself against rainy days is never bad. But if you’re trying to save up in a storm, those defenses won’t be able to keep up. 

To put that simply, interest rates just can’t keep up with the rising inflation—which means you start to lose your purchase power over time.

If inflation exceeds your interest rates, retirees can struggle to keep up with their standard of living. And you’ll effectively lose money if you’re saving up for a house or college fund

Small Business Owners 

Inflation is never a lone ranger. It usually comes with supply chain disruptions, high-interest rates, and rising costs. All of which is bad news for small businesses. 

Services become more costly, and it becomes more expensive to borrow money. Companies are often forced to lay off workers or increase their prices to keep up with the competition. 

During peak inflation in 2022, the monthly expenditure of small businesses dropped by 5%, from $11,401 in Q1 to $10,884 in Q3. 

Stock Holders 

The stock market is known for being volatile—but add on inflation, and you’re in for a rocky ride. 

With interest rates rising, stocks can take a hit when high rates have a negative effect on equity valuations. Growth stocks often suffer the most as value stocks have a strong cash flow to support them, which can grow slowly over time. 

According to the Russell 1000 Index (a stock market index), in 2022 their Growth Index was down 25.7%, and the Value Index was down 7.6%.


Inflation means higher prices across goods and services, and the cost of real estate is no exception. 

And as real estate prices increase, landlords can raise their rental prices and gain more profit from their fixed mortgage rates. Renters in high-cost areas like New York and San Francisco get hit particularly hard. 

The average monthly rent in Manhattan showed a 29% annual increase, going past $5,000 for the first time in July 2022. 

And across the US, rent inflation climbed to 8.2% in March 2023. This is up from 8.1% in the prior month (the highest rate since June 1982). 

Who Benefits From Inflation?

For most of us, inflation means holding your breath whenever you dare to look at your bank balance. 

But there are those who’ll go unscathed by the rising costs—some will even benefit from it. 

And before you get your pitchforks and torches, we’re not just talking about the filthy rich. There are plenty of semi-normal folks and sectors that benefit from inflation. 

So let’s uncover them— 

The energy sector 

Energy prices have reached new heights over the past year. But guess who still needs gas to drive to work and electricity to sustain their weekly Netflix binge habit? 

Unless we all go on an extended tech-free camping trip for the foreseeable future, energy companies can keep hiking up the prices, knowing there’s plenty of demand out there. 

And it’s not just the CEOs who are raking in the profits. Those investing in energy can also jump on the money-making bandwagon. 

Precious metal owners 

If you’re lucky enough to have some gold and silver lying around, you could be in luck. 

While prices for food and energy are tossed around by the inflation storm, the cost of precious metals remains relatively unscathed. 

Research has discovered that gold has a track record of acting as an inflation hedge and rose by 14.9% during times when the US was seeing high inflation rates. 

However, gold isn’t totally free from price fluctuations, so it works best as a long-term investment if you want a more reliable inflation hedge. 

Homeowners with a fixed mortgage 

Here’s one that most of us can relate to (and complain about)—mortgage rates. 

Unless you have an adjustable mortgage rate (ARM), those with a fixed-interest mortgage loan will be well shielded from rising rates.

The same can’t be said for renters, though, who have much less control over increasing rental prices. 


While tenants are paying the price for inflation, landlords have the opportunity to profit from rising costs. 

With fixed-mortgage rates, landlords can generate a higher income by bumping up prices. 

But there’s a catch. By increasing rental prices, landlords risk losing tenants to cheaper nearby properties, especially in low-income zones. 

Those who can afford to increase the rent are often found in higher-income areas with more modern properties under their belt.

Is the US Headed for Hyperinflation?

Before we answer, let’s explain what hyperinflation actually is. 

Let’s put it this way—if your weekly grocery bill went from $50 to $100 in a month, and then soured up to $1,000 in half a year, you’re probably experiencing hyperinflation. 

Sounds crazy—but hyperinflation is alive and taking down countries across the world. 

Here are some of its devastating consequences— 

  • The inflation rate in Venezuela currently stands at 156%, making the Venezuelan Bolívar the most inflated currency. Its central bank recently introduced a new 1-million-bolivar bill to help with transactions, but due to currency rapidly losing value, the new bill is only worth about 50 cents
  • Argentina’s inflation rate hit a record-breaking 102.5% in February this year. Prices across consumer goods have doubled since 2022, landing many of its citizens in poverty.
  • Lebanon reached an annual inflation rate of 189.67% in February—an increase from 123.53% in the previous month. The Lebanon pound also hit an all-time low, with 140,000 pounds to the dollar.
  • Zimbabwe experienced a hyperinflation crisis for almost two decades, and had a daily inflation peak of 98% (meaning prices would double almost every day). Unemployment rates reached 80%, and poverty spread throughout the country. 

So, is the US going to be the next Zimbabwe? 

Probably not. Despite rising rates, the US economy is still strong enough to stay clear of hyperinflation. But to bring the economy back to a stable condition, all eyes will be on the Fed. 

Cory Mitchell, an analyst from Trading.biz, commented:

While the Fed’s rate increases have eased inflation, the market is still anticipating at least one more rate hike to 5.25%. That rate hike in May will probably happen, yet the Fed is close to getting inflation under control, and the stock market is liking it.

Cory Mitchell analyst at Trading.biz

However, this doesn’t bring much comfort to those living paycheck-to-paycheck unless the Fed gets transparent about its role in inflation and how they may have misjudged their formula when raising interest rates. 

How To Fight Inflation

It’s not all doom and gloom, though. Here’s how you can take steps to protect yourself (and your cash) from fluctuating inflation rates— 

Do your research 

Knowledge is power. To stay ahead of the game, you need to learn the rules.

Make smart investment choices, like investing in value stocks or precious metals, to keep on top of inflation and maintain the value of your portfolio. Aim to diversify it—inflation affects each asset differently, so spreading your investments can help protect you from the impact of inflation.

Adjust your business practices 

Rising costs make it difficult for small businesses to survive, let alone thrive. 

To keep on top of expenses, businesses can manage the expectations of customers and make reasonable price increases to meet the higher costs of running the business. 

Figure out areas where you can cut down and only consider extra expenses and expansion when it’s feasible. You can also pinpoint cost-effective marketing strategies that could boost your profits. 

Manage your spending 

If prices are rising, the obvious thing to do is cut back on spending. 

Easier said than done? Try using a budget calculator and plan how to cut down on costly items, such as food and energy. 

By cutting costs and saving money, you’ll be more prepared if inflation continues to rise, or if you get hit with any unexpected emergencies. 

Reduce your debt 

Inflation erodes the purchasing power of your money over time. If you have high-interest debt, inflation makes it more difficult to pay off that debt because your money is worth less than it was when you borrowed it. 

By lowering your debt, you reduce the amount of money that inflation can impact, while also freeing up your income to save and invest. 

Is Inflation Going to Get Worse?

The history of inflation in the US is a rocky one. 

This isn’t the first time we’ve faced economic hardship, and it likely won’t be the last—but learning from past mistakes is key to moving forward and building resilience. 

The Federal Reserve is taking steps to reduce inflation, such as stabilizing interest rates and scaling back asset purchases. As a nation, we can also fight inflation by investing in infrastructure, increasing productivity, and promoting economic growth. 

While the current inflationary environment may be challenging, there’s hope for a brighter future as the economy continues to recover and adapt to changing conditions.


What to do during inflation?

Surviving inflation requires careful planning and financial management. Here are some tips that can help:

  • Invest in assets that appreciate with inflation: Stocks, real estate, and commodities tend to appreciate with inflation, which can help protect your purchasing power.
  • Create a budget: Having a budget and a plan for saving can help you prioritize your expenses and save money for the future. 
  • Diversify your investments: Diversifying your portfolio can help reduce risk and protect your investments against inflation.
  • Manage debt: Avoid taking on too much debt and maintain good credit to ensure you have access to affordable credit when you need it.
  • Stay informed: Keep up-to-date on economic conditions and global trends that may impact inflation. 
Who is hurt by inflation?

The most vulnerable groups are those on fixed incomes, such as pensioners and low-wage workers, whose purchasing power can be eroded by rising prices. 

Additionally, people who save money in low-interest accounts may see the value of their savings decrease over time. Inflation can also impact businesses by making it harder for them to plan and invest, and they may have to raise prices, which can reduce demand for their products and services. 

Finally, inflation can hurt lenders, such as banks and other financial institutions, who may not be able to collect the full value of loans they have made. 

What is the inflation rate?

The annual inflation rate is currently 5%—but as of March 2023, the rate in the US stands at 6.2%. 

This means that on average, prices for goods and services have increased by 6.2% over the past 12 months. 

To manage the impact of inflation on personal finances, you can put money into assets that have historically outpaced inflation, such as stocks or real estate investments.

Reviewing and adjusting your budget to cover changes in the cost of living could also help you in times of economic uncertainty. 

How to stay rich during inflation?

Staying rich during inflation involves careful financial planning and a focus on preserving your assets and maintaining your purchasing power. 

One of the most important inflation measures and strategies is to invest in assets that appreciate with inflation, such as stocks, real estate, and commodities. These assets tend to increase in value as prices rise, helping to protect your wealth from inflation.

Diversifying your investments is also important to reduce risk and ensure that your portfolio is not overly exposed to any one sector or industry. Make sure you have a diversified portfolio that can weather the ups and downs of the market.

Does inflation hurt the rich more?

Inflation can impact people differently depending on their circumstances, so it’s not necessarily true that inflation hurts the rich more than the poor. 

However, the wealthy typically have more resources to mitigate the effects of inflation, such as by investing in assets that appreciate with inflation, like real estate, stocks, and commodities. 

Low-income individuals who rely on fixed incomes or who have limited resources to invest may be more vulnerable. Rising prices can reduce their purchasing power, making it more difficult to afford necessities such as food, housing, and healthcare.

Will inflation cause a housing crash?

Inflation itself is not a direct cause of a housing market crash, but it can contribute to one under certain circumstances. 

If inflation leads to higher interest rates, borrowing costs can increase, which can make it more difficult for homebuyers to qualify for a mortgage or to afford higher monthly payments. This can lead to a decrease in demand for homes, which can put downward pressure on housing prices. 

Additionally, if inflation leads to a recession or economic downturn, it can cause job losses and a decrease in disposable income, which can also lead to a decrease in demand for homes.

Does inflation cause recession?

Inflation itself doesn’t necessarily cause a recession, but high and persistent inflation can contribute by creating economic instability and uncertainty. 

When inflation is high, consumers may reduce their spending as they struggle to afford basic goods and services, and businesses can delay investments as they face rising costs. 

High inflation can also lead to an increase in interest rates, which can make borrowing more expensive and further reduce spending and investment.

How long does inflation last?

The duration of inflation depends on the causes and the actions taken to address it. Inflation can be temporary and die down on its own, while in other cases it may continue for a longer period. 

For example, if inflation is driven by temporary supply chain disruptions, it will likely drop once the disruptions are resolved. But if inflation is driven by long-term factors, like changes in government policies or structural shifts in the economy, it may stretch out.

Central banks and governments often take various measures to deal with inflation and manage its impact on the economy. For example, central banks might increase interest rates to reduce demand and slow down inflation.

Why is inflation bad?

Inflation affects the purchasing power of money, along with other negative effects: 

  • Purchasing power risks: When inflation rises, the value of money decreases, which means you can buy fewer goods and services with the same amount of money. 
  • Uncertainty: Inflation can cause uncertainty for both businesses and consumers. Businesses can struggle to make decisions about pricing and investment, while consumers may delay purchases in anticipation of higher prices. 
  • Reduced economic growth: Inflation can lead to higher interest rates, which can make borrowing more expensive for businesses and consumers, ultimately leading to reduced economic growth. 
How does inflation affect the economy?

When the money supply increases faster than the growth of goods and services in the economy, it can lead to an excess supply of money, which can increase demand and result in higher prices. 

Similarly, when demand exceeds the economy’s capacity to supply goods and services, it can lead to higher prices due to a shortage of supply relative to demand. 

Other factors that can lead to inflation include changes in government policies, supply chain disruptions, changes in exchange rates, and changes in consumer behavior.


See all

2023 Inflation Impact Study. (n.d.). Retrieved April 17, 2023, from https://www.biz2credit.com/research-reports/biz2credit-inflation-impact-research-report-2023

Argentina inflation soars past 100% mark. (2023, March 15). BBC News. https://www.bbc.com/news/world-latin-america-64960385

Caldara, D., Conlisk, S., Iacoviello, M., & Penn, M. (2022). The Effect of the War in Ukraine on Global Activity and Inflation. https://www.federalreserve.gov/econres/notes/feds-notes/the-effect-of-the-war-in-ukraine-on-global-activity-and-inflation-20220527.html

Changes to consumer expenditures during the COVID-19 pandemic: The Economics Daily: U.S. Bureau of Labor Statistics. (n.d.). Retrieved April 17, 2023, from https://www.bls.gov/opub/ted/2022/changes-to-consumer-expenditures-during-the-covid-19-pandemic.htm

Consumer Price Index Summary—2023 M03 Results. (n.d.). Retrieved April 17, 2023, from https://www.bls.gov/news.release/cpi.nr0.htm

Current US Inflation Rates: 2000-2023. (2008, July 23). https://www.usinflationcalculator.com/inflation/current-inflation-rates/

Doherty, C., & Gómez, V. (n.d.). By a wide margin, Americans view inflation as the top problem facing the country today. Pew Research Center. Retrieved April 17, 2023, from https://www.pewresearch.org/fact-tank/2022/05/12/by-a-wide-margin-americans-view-inflation-as-the-top-problem-facing-the-country-today/

Fed continued to tighten in March despite banking turmoil. (n.d.). Retrieved April 17, 2023, from https://www.conference-board.org/blog/global-economy/FOMC-march-2023

IMF warns without reforms, Lebanon could see hyperinflation. (2023, March 23). The Independent. https://www.independent.co.uk/news/imf-ap-lebanon-beirut-international-monetary-fund-b2306775.html

Lebanon Inflation Rate—March 2023 Data—2008-2022 Historical—April Forecast. (n.d.). Retrieved April 17, 2023, from https://tradingeconomics.com/lebanon/inflation-cpi

Market Reports. (n.d.). Miller Samuel Real Estate Appraisers & Consultants. Retrieved April 17, 2023, from https://millersamuel.com/reports/

Personal Income and Outlays, February 2023 | U.S. Bureau of Economic Analysis (BEA). (n.d.). Retrieved April 17, 2023, from https://www.bea.gov/news/2023/personal-income-and-outlays-february-2023

Pettinger, T. (2019, December 10). Hyper Inflation in Zimbabwe. Economics Help. https://www.economicshelp.org/blog/390/inflation/hyper-inflation-in-zimbabwe/

Reuters: Cash ‘Disappearing’ in Venezuela Despite Hyperinflation—Foundation for Economic Education. (n.d.). Retrieved April 17, 2023, from https://fee.org/articles/reuters-cash-disappearing-in-venezuela-despite-hyperinflation/

The Russell 1000 | FTSE Russell. (n.d.). Retrieved April 17, 2023, from https://www.ftserussell.com/russell-indexes-your-index-matters/russell-1000

United States Rent Inflation—March 2023 Data—1954-2022 Historical—April Forecast. (n.d.). Retrieved April 17, 2023, from https://tradingeconomics.com/united-states/rent-inflation

U.S. Bureau of Labor Statistics. (1948, January 1). Unemployment Rate. FRED, Federal Reserve Bank of St. Louis; FRED, Federal Reserve Bank of St. Louis. https://fred.stlouisfed.org/series/UNRATE

Venezuela Inflation Rate—March 2023 Data—1973-2022 Historical—April Forecast. (n.d.). Retrieved April 17, 2023, from https://tradingeconomics.com/venezuela/inflation-cpi

Editorial team

Meet the team
Lauren Bedford - Finance Writer

Finance Writer

Lauren is a published content writer who is passionate about helping and informing others through her content. In the last 5 years, Lauren has written about a range of subjects, including business, technology and finance.

Kacper Kozicki - Editor


Editor, copywriter, and multilingual translator with expertise in producing tailored content for global online brands. When not editing articles for LifeAndMyFinances.com, he enjoys rummaging through paper dictionaries, walking in nature, and making travel plans.

Derek Sall - Personal Finance Expert

Personal Finance Expert

Derek has a Bachelor's degree in Finance and a Master's in Business. As a finance manager in the corporate world, he regularly identified and solved problems at the C-suite level. Today, Derek isn't interested in helping big companies. Instead, he's helping individuals win financially—one email, one article, one person at a time.

Deepti Nickam - Finance Writer

Finance Writer

Content writing and marketing professional with 4+ years of experience in the B2B and B2C sectors. Deepti has written about several subjects, including finance, project management, human resources, and more.

Save time and money with LifeAndMyFinances

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