Has inflation started coming down? what do the figures say

in this article:

Many Americans are wondering where the economy is headed as we begin to see food prices and gas prices level off, but mortgage rates skyrocket. With conflicting interpretations of inflation data galore, it’s hard to know what’s next. In this article, we take a look at today’s inflation and how it impacting small business owners and consumers.

Is inflation coming down?

Monthly increases in inflation rates throughout 2022 appear to be slowing from the peak rate of 9.1 in June 2022, but there is no way to say with certainty whether the rate will decline, increase or remain stable as we look forward to next year. are doing.

Where is inflation today?

most recently inflation report The inflation rate for November 10, 2022 was listed at 7.7% by the US Department of Labor. This is the annualized rate calculated for the period of twelve months ending October 31, 2022. Updated data that gives the inflation rate for the twelve months ending 30 November.th Next release will be on 13th Decemberth2022. At 7.7%, inflation is Highest It’s from 1982. At the end of 2020, inflation stood at 1.4% with a monthly average of 1.2%. At the end of 2021, the inflation rate had risen to 7%, with an average of 4.7% for the year. Inflation fluctuated between 0.1% and 3.4% between 2000 and 2019.

While we look at the rate calculated for the twelve months ending in December to summarize the inflation rate for each year, inflation is calculated using Consumer Price Index (CPI) data. provided by cpi United States Department of Labor Bureau of Labor Statistics and is defined asA measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services,

As inflation, or the general price of goods and services increases; The US Central Bank, also known as the Federal Reserve, combats inflation. increase in the federal funds rate, When the federal funds rate is raised, interest rates are raised in an attempt to slow the economy and allow supply to catch up with consumer demand. The Federal Reserve decides on actions surrounding the federal funds rate during scheduled Federal Open Market Committee (FOMC) meetings.

Since the beginning of 2022, the fed funds rate has been raised six times, the most since 2005. To make matters tougher for consumers, borrowers and small businesses, the rate increases through 2022, unlike in 2005, are capped. Everyone was important. The last four Federal Reserve rate hikes, which took place between June and last month, have been 75 basis points each. The current federal funds rate is 3.75% to 4%. next FOMC The meeting is to be held around December 14thWhen the Fed will decide on the seventh rate hike of 2022.

Will there be another rate hike in December?

Since the data considered by the Federal Reserve is not yet available, it is impossible to say what will happen at the next FOMC meeting when it comes to the federal funds rate. However, many economists, including Forbes.com Senior contributor, Simon Moore, says we “likely to see another hike, As the November CPI and annual inflation rates are made available, the following economic data will contribute to the December decision.

  • inflation rate Inflation rate will be calculated using the CPI report, personal consumption expenditure (PCE) and producer price index (PPI) data, the Fed will be more likely to decide on a three-quarter percentage point hike if US inflation continues to rise.
  • job market – The november employment report It will be reviewed to see how the labor market has been affected in recent months and the unemployment rate, both factors to be considered when deciding how high of a rate increase to implement.
  • speech and notes – The Fed agrees with a vote on its monetary policy and rate hike decisions that is influenced by reviewing notes from previous meetings and listening to impressive speakers such as Jerome Powell, the 16th chairman of the Federal Reserve, who will be speaking at the final FOMC meeting of 2022. Will speak

How does inflation affect consumers

It can be intimidating to hear details about rising inflation rates and the dangers of a potential recession, but it’s important to understand how inflation affects your business and consumer spending. Consumers feel the effects of inflation through many everyday financial transactions, such as comparing housing costs and personal loan interest rates.

borrowing power

As the federal funds rate rises, Rate of interest Growth has occurred for small business loans, personal loans and consumer mortgages. When the Federal Reserve increases the federal funds rate, consumer loan interest rates are also affected because they are based on standardized rates such as the PRIME or LIBOR rates. By raising interest rates, the government is trying to control consumer spending by making it more expensive to borrow money.

However, interest rates are a major factor when determining the overall financing cost of a personal loan, line of credit, or credit card. Fixed interest rates remain the same over the life of a loan, but are quoted higher by lenders when the Fed rate is higher because the financial institution is passing on its increased borrowing costs to the consumer. variable interest rates The loan term fluctuates based on the current PRIME, LIBOR, or other market rate indicator. Loans with variable interest rates typically have a base rate that is added to the current market rate to calculate the interest expense each month.

annual increment

As the cost of living, such as rent and grocery prices, rise with inflation, many consumers turn to their employers to ask for increases. According to cnbc,Wages were much higher than the previous year, with the average merit increase being 4.8%, which is significantly higher than the standardized merit increase rate of 3% year-over-year.,

Most consumers are not experiencing wage increases large enough to match the rising prices of everyday necessities, but many expect standard wage growth to remain above average throughout 2023. Unemployment rate Currently stable at 3.6%, but pressure on employers to raise wages could also create a rise in unemployment.

the cost of living

Most consumers first notice the effects of an economic downturn in their everyday personal finances as the following expenses increase:

  • cost of food
  • travel expenses, such as flights and hotels
  • rent goes up
  • medical care costs
  • gas prices
  • utility and energy prices, such as household electricity and natural gas

The increased cost of living is mostly due to inflation, driven by a number of events during the past year, including the war in Ukraine, the pandemic and supply chain disruption,

investment income

Inflation and rising interest rates affect the cost of borrowing money, but they also affect investments, such as those held on the New York Stock Exchange (NYSE). As inflation peaks, many investors sell their stock shares, so the share price of the investment falls, and consumers make less money in the stock market. At the same time, higher interest rates mean higher interest and dividend income on CDs, money market accounts and bonds.

How does inflation affect small businesses?

small business owners feel effects of inflation In every area of ‚Äč‚Äčtheir business including trade lending, recruiting, supply costs and revenue. whereas inflation effect Affects entrepreneurs just as it affects consumers, there are many other factors that can affect annual revenue, net income and small business success.

Number of Employees

As discussed in the previous section, rising prices directly affect labor market demands for higher wages. Employers are forced to weigh the pros and cons of giving pay raises against their concerns of declining income and possible layoffs. In addition to asking for pay raises, many employees have begun requesting hybrid work environments, where they are able to work remotely, at least for part of the time. Small business owners may be able to combat the burden of salary increase demands by offering more flexible work schedules or remote working capabilities.

Revenue

When the cost of living rises, consumers worry more about putting food on the table, keeping their jobs, and increasing the cost of borrowing. Financial stress on households spills over to small businesses as consumer spending slows. People stop spending money on luxuries and non-essential items which in turn negatively impacts the sales of many small businesses.

Rate of interest

A hike in interest rate can affect entrepreneurs in the same way as it affects consumers. Higher interest rates drive up the cost of new business loans, which also affects eligibility requirements and monthly payment amounts. Business borrowers with variable interest rate loans are suddenly seeing very high monthly borrowing costs and may not have enough working capital left over to cover other business expenses. At the same time, high borrowing costs may discourage customers from making large purchases or purchasing products and services with a credit card.

supply cost

At the peak of the COVID-19 crisis, Americans felt the effects of supply chain issues, labor shortages, and plant closures. Raw material costs continue to rise as President Joe Biden works hard to address multiple supply chain disruptions rising inflation, When raw material costs are high, small business owners are forced to pay more for office supplies, inventory and items needed for everyday operations.

How to cope with fluctuating inflation rates

In times of high inflation, there are steps small business owners can take to secure the future of their organization. While there is little certainty in knowing how long we will battle rising prices, implementing the following strategies can help your business thrive during fluctuating inflation rates.

reduce spending

Operating expenses naturally increase during inflation, but there are many cost that may less during high inflation. Try cutting down on the following business expenses:

  • lease cost – Examine your business model to see if there is room to eliminate office space expenses. Can your employees work from home? Can you share office space with another business?
  • reduce inventory Try to keep less inventory on hand to cut down on both purchasing costs and storage costs and space requirements.
  • renegotiate contracts – Reach out to vendors about negotiating your prices. You may be able to get a discount by signing a longer contract or agreeing to change the delivery frequency.
  • reduce advertising costs– Consider cost-effective efforts to market products and services, such as creating an email campaign or social media presence.

Consider additional capital

Even though interest rates are higher at this time than they were last year, there are situations when it makes sense for an entrepreneur to consider business financing options. If You’re Struggling To Make Monthly Loan Payments, You May Benefit From refinancing Your current loans, eg Tim OrsonWas able to do with Shear Shack Salon Biz2Credit’s helping out. If you are concerned that you may not have the cash flow to cover operating costs or make necessary repairs or purchases, talk to a lender today. merchant cash advance either business line of credit,

final thoughts

Increases in the prices of everyday essentials such as groceries, fuel and housing have begun to stabilize, but Americans are still dealing with the highest inflation rate they have experienced in forty years. While the Federal Reserve raises interest rates as a way to slow spending and fight inflation, increased interest rates on top of rising costs can leave small business owners wondering how much more they can afford. If you’re not sure what the next right step is for your company’s finances, get in touch Biz2Credit To see if there is a financing option that is right for your situation.

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