Why Is Everything Suddenly So Expensive?

People are still arguing about the root cause of the recent inflation, but they all agree that one of the main reasons is the COVID-19 pandemic.

While we were sitting at home firing off blog posts in our sweatpants or becoming addicted to TikTok (we definitely caught a vibe), so were the people who staff the factories and farms that make a lot of the stuff we consume.

But our appetite for these things didn’t go away. If anything, being stuck at home made us order even more. Even though we were in lockdown, we still bought pet food, ground beef, laptops, cars, lumber, etc.

The supply of all of these things dwindled, and once we emerged from lockdown and started demanding more, the factories and farms couldn’t keep up.

In 2022, Russia’s invasion of Ukraine further shook things up by disrupting the global supply chains for commodities like energy and food.

One of the basic laws of human history is that when the supply of something goes down, the price of it tends to go up. That’s a big part of why limited-edition, designer goods are so expensive, but it’s also true for basic stuff like food, fuel, and computers.

It’s also true for workers. They are now quite rightly demanding more money to come back to work to offset the rising living costs.

There are a number of ways that you can protect yourself against rising costs. Start by following this simple guide:

1. First, look at your own earning situation

When inflation is raging, it’s very important for your salary to match the cost of living in your area. Make sure you’re being compensated fairly for your work.

Are other people making more money doing what you do elsewhere? The salary that companies are prepared to pay will keep increasing as prices keep going up, so it’s always worth making sure you’re properly valued.

If you do find that you’re being underpaid, perhaps it’s time for a conversation with the boss. If you don’t get the results you’re hoping for, start sending out those resumes. One of the consolations of this era of rising inflation is that the labor market is also booming, which means there are plenty of opportunities in almost every field.

2. If you’ve got money stashed away in a savings account, keep an eye on the interest you’re earning

It’s very important to consider inflation when you’re evaluating your savings account. If you have money in an account that’s paying you 1% per year but inflation is raging at 5% per year, you’re actually losing purchasing power—even though technically, you’re making money.

The good news (as far as savings accounts are concerned) is that to combat inflation, the Federal Reserve has been increasing interest rates.

This means that borrowing money (e.g., credit cards and loans) now costs more in interest, but it also means that savings accounts are beginning to pay more in interest, too.

As of June 2023, the best high-yield savings accounts pay between 4.81%–5.12% per year. If you have substantial savings in an account with a lower APR (aka interest rate) than that, look into opening a new one.

3. If you haven’t already, now might be a good time to consider investing

There are a lot of investments that have the potential to grow in value as fast as (or even faster than) money you stash in a savings account.

In times of high inflation, many people choose to park their money in:

• Treasury Inflation Protected Securities (TIPS): These are financial instruments that are offered by the US government. Their value rises at the same pace as inflation, so they’re guaranteed to protect your purchasing power, although they won’t actually grow your wealth.
• Real estate: Housing prices usually rise with inflation, making real estate a good bet in this economic climate. If you can’t afford to actually buy property, you can buy shares of real estate investment trusts (REITs), which are companies that invest in property and are often publicly traded on the stock market.
• Stocks: Inflation can have a negative impact on stocks, but in general, the market averages a return of around 10% per year. If you invest your money into the market sensibly, it’s likely to grow in the long term (5—10+ years), although there’s no guarantee that it will in the short term.

Some people also choose to invest in bonds (particularly short-term bonds), although like the stock market, the bond market usually suffers in inflationary times.

You can also invest in cryptocurrency, but the crypto market is extremely volatile, so this is a particularly risky option.

Whatever investment strategy you pick, thoroughly research it before you commit. Make sure you don’t take on more risk than you’re comfortable with.

4. Finally, consider picking up a side hustle

If your money isn’t stretching as far as it used to, it might be worth starting a side hustle to earn a little extra cash.

This could involve picking up a second job, getting into app-based gig work (e.g., becoming an Uber Eats driver), or just monetizing a hobby you already have (like taking on DIY craft projects and selling the results on Etsy). Check out this list of side hustle ideas and see if any strike you as something you’d like to do.

In the end, although nobody likes inflation, there are lots of ways to deal with it. It won’t last forever, and if you come up with a sensible strategy and pursue some of the methods on this list, you’ll be able to protect and even grow your savings during this period of rising prices.