What is causing inflation, and what can we expect?

Posted at 5:08 PM, Jan 20, 2022

New inflationary numbers continue to show inflation is increasing and continuing to create challenges for low and middle income families.

So, News 3 financial expert Carl Carlson, CEO and founder of Carlson Financial, spoke with us about this issue.

Carlson said the latest numbers show 2021 inflation rate increase to 7%, a high not seen for 40 years. If you are spending $5,000 per month and there is a 7% increase in your expenses, that is an increase of $350 per month.

If this continues for another year, then by the end of this year, those having their $5,000 budgets already increased to $5,350 will have their budgets increased by an additional $375 a month for a two-year increase of $725 per month.

Carlson said the COVID-19 pandemic and its variants are causing these temporary inflationary increases.

He said the long-term ones are caused by the government increasing the money supply, and the price of fuel. Some of the lagging effects of the longer-term inflation will likely replace the shorter term COVID-19 inflationary issues to continue us on 40-year highs, according to Carlson.

Expenses/payroll increases for businesses are also passed on to consumers.

“Imagine how much business expenses are increasing. Some of this is lagging because not all payroll is increased yet, businesses had stockpiles of inventories and goods at old prices, etc. So, it could get worse,” Carlson said.

The effects of all the money printing recently are not fully seen in the inflation rate yet wither, Carlson said. It doesn’t happen immediately; it takes some time to play out, and he said this will get worse if the government continues to print money.

Although it sounds like the Federal Reserve will be able to control this by increasing interest rates, the Fed does not control inflation; they do not have a guaranteed solution.

The Fed tries to control inflation, but Carlson said do not take comfort in the Fed, thinking they can actually control it.

“If they could, wouldn’t they have done it already. They have things they try to do to help control it, and one of those things is increasing interest rates. But remember - it is nowhere near a perfect science when it comes to controlling inflation,” Carlson said.

If you’d like to deal with this inflationary increase, Carlson suggests employees push hard for those bigger raises, asking for a minimum of 7% just to keep up with inflation.