Inflation: How Has It Evolved in 2024?

As we roll through 2024, many of us are feeling the pinch in our wallets as we notice those pesky price tags creeping higher. But what’s really going on behind the numbers? Is it a fleeting hiccup in the economy, or are we in for a wild ride? In this blog, we’ll peel back the layers on inflation’s evolution this year, what’s been driving these changes, and how things are shaping up for 2025. Buckle up as we navigate the ins and outs of inflation and arm you with insights to help you steer your financial future with confidence!

Inflation measures how much the prices of goods and services rise over time. If you’ve noticed your grocery bill getting higher, that’s inflation in action. We typically measure it using the Consumer Price Index (CPI), which tracks price changes for a basket of common items.

Inflation comes in different forms. Demand-pull inflation occurs when demand exceeds supply, like when concert tickets sell out fast, causing prices to soar. Cost-push inflation happens when production costs rise, forcing businesses to increase prices. And finally, built-in inflation arises from the expectations of both employers and earners—if people anticipate higher prices, they may demand more wages, which can lead to a cyclical movement of rising costs.

Understanding inflation is crucial, as it impacts our purchasing power and overall economy, but therein we can also better prepare ourselves for the future.

It’s clear this year has brought some noteworthy changes. The latest data from the Bureau of Labor Statistics shows inflation rates hovering around 2.4% (as a 12-month percentage change on the Consumer Price Index), which is a significant shift compared to the highs we experienced since 2021. That being said, this year has also been somewhat of a rocky road, as inflation was particularly high in the first two quarters, bouncing around the mid-3% range, before reaching its current level at the time of writing. However, through consistent challenges and changes such as rising food prices, global conflict, and political change, consumer demand (i.e. purchasing and spending) has remained impressively strong. All of these factors contribute to the complexity of our current inflation landscape throughout this year and as we look forward.

Our economy is organized around a variety of different sectors which have a tendency to feel the impact of inflation in unique ways. An example of this is how housing costs have surged, driven by high demand and limited inventory. Unfortunately, notable increases in rent prices and home values make it tough for many to find affordable options, even as it helps property owners. On a similar note, the prices of general services have also spiked due to both supply chain disruptions and rising labor costs. 

However, the other side of the coin is that the inflation rate of food at home has seen a significant decrease in recent months and the inflation rate of education and communication remains generally lower than the average for all sectors. To see the effect on different sectors yourself, take a look at the relative changes in the Consumer Price Index, and filter it accordingly. 

It is the job of the Federal Reserve to take action against inflationary pressures. Interest rates for the Federal Reserve have been adjusted to manage inflation. Through raising interest rates, for example, the idea is that by increasing the cost of borrowing money, people and businesses should decide to borrow less and, therefore, spend less, cooling inflation. While this might somewhat sound alarming, it’s a necessary step to stabilize prices and create a more balanced economy. 

Overall, 2024 has been a year of fluctuating inflation between 3-4%, directly influencing how we spend and save. As we continue to navigate these changes, it’s essential to stay informed about how inflation impacts our everyday lives and financial goals, and in this way, we can prepare for what’s next in 2025.

Looking ahead to 2025, experts have mixed opinions on where inflation is headed. Some economists predict a gradual decline, suggesting that the measures taken by the Federal Reserve will start to take effect, stabilizing prices as we move through the year. Others, however, caution that continued global uncertainties—like geopolitical tensions in Ukraine, the Middle East, and around the South China Sea, the US presidential election, as well as climate impacts—could hike inflation rates once more. 

As we prepare for 2025, several key indicators will be crucial to watch. Consumer spending will be a significant factor; if people continue to spend despite rising prices, we could see inflation remain stubbornly high. Additionally, keep an eye on oil prices—fluctuations in energy costs can ripple through the economy, impacting everything from transportation to food prices. Finally, changes in employment rates and wage growth will also play a role in shaping inflation trends.

In times of inflation uncertainty, it’s essential to take proactive steps to protect your investments. One strategy is to diversify your portfolio. By spreading your investments across various asset classes—like stocks, bonds, and real estate—you can reduce risk and potentially enhance returns. Additionally, consider investing in inflation-protected securities, which are specifically designed to keep pace with rising prices. Another helpful tip is to review your budget and spending habits. By identifying areas where you can cut back, you can ensure that your savings remain intact, allowing for greater investment flexibility.

Even with a certain amount of basic knowledge, navigating inflation and investment strategies can be complex. That’s where a certified financial planner comes in. At Dunnigan Financial, our clients are family and we take great pride and joy in helping them weather difficult financial stretches and manage their finances through all the seasons of life. Contact us today to set up an appointment or to learn more about why our clients love working with us!