The biggest way that inflation hurts is that we have less purchasing power. Our dollars in the bank are worth less as time passes because prices are more expensive. It hurts because it shows we are not doing as well as we think we are.
What’s even worse is that during high inflationary times, stock markets tend to be negative as well because profit margins shrink. Therefore, not only do we lose our purchasing power, we lose wealth as well. Inflation hurts in much more ways than one.
I personally never thought we would experience something so drastic so quickly in 2022 and beyond.
However, our government knows how to financially ruin the American economy through inflation. Just the other day, I went to Raising Cane’s and their Caniac combo used to be an affordable $10. Now it’s a whopping $16+! A 60%+ inflation in just a few years!
Inflation was one of the few times where I actually felt emotional, mental, and physical pain by spending money. At the gas pump, at the department store, and at the restaurant. I never felt anything like that before because I was sick to my stomach after spending money.
Inflation hurts because it means all your hard work has been eroded. In general, we feel pain whenever we pay for something. Because our power is slowly gone. However, hyper inflation makes that pain much worse because the higher dollar prices make us feel something.
The fruits of our hard labor shouldn’t be taken away that easily.
Inflation Hurts: 9 Effects of Inflation
Below are the 9 concrete ways that inflation hurts. I’ve been there before and I experienced it. It felt like my life was out of control. 2023 was better but 2022 was a huge shock. We should prepare for price shocks beforehand so we can always come out on top at the end.
1) Less Purchasing Power
The most obvious way that inflation hurts is that our purchasing power goes down. The dollar declines in value every year generally, but high inflation lowers the dollar’s value that much more. $100 at the grocery store just doesn’t buy the same amount of goods as 20 years ago.
It used to cost me $18 to fill up my car. Now it costs $30 to fill up my car! I used to feel light at the gas pump after every fill up. Now I feel a heavy heart every time I fill up my car to the max. And the prices are just going up even higher.
It doesn’t feel good when we don’t have power. We, as humans, do not like feeling powerless. When we need someone else to take care of us, we feel dependent. And it’s just about the worst feeling in the entire world. We like working and we like feeling like we can stand on our two feet.
When our purchasing power is that much lower, we don’t feel like we’re in control anymore. It deeply pains us.
2) Inflation Hurts: It Hurts Your Mind
When I was only paying $18 to fill up the car, I felt amazing! I felt like I was winning because that felt like almost nothing to pay for what I was getting in return. Now that I’m paying $30+ per fill up, it felt like I was losing every transaction. And I have no other choice!
When oil reached $130 a barrel, I was paying $45+ to fill up my car. I felt deep pain during that period because I had no other choice but to lose every single time. Inflation hurts because when you are losing every transaction, your mind feels the pain.
You just know you are not making a smart or the right purchase. But you have no other choice but to take it because there are no alternatives to paying for necessities like food or gas. 2023 is when I hyper focused on finding deals to lower my costs as much as possible.
I actually mostly succeeded and kept costs as low to about $1.5k/mo. My mind was much more at ease afterwards.
3) It Ruins Your Confidence in Buying Goods
You feel almost forced to buy goods because you don’t know how much more expensive it’ll get tomorrow. In the good old days, Chipotle used to only cost $7.25 per bowl. Now it costs $10 per bowl. And they skimp out on the ingredients much more.
Inflation hurts because your financial confidence plummets when buying goods. You just don’t know if the price increase is truly due to an increase in costs or the seller is using inflation as an excuse to charge more. I personally spent $1.6k to move between cities in 2022.
My friends paid $1.4k to move between states. But because we had high inflation prints, I just accepted the price as is and paid it. To this day, I have no idea if I overpaid or if the movers genuinely increased prices because of an increase in costs.
The Federal Reserve has an important job in achieving price stability because it destroys consumers’ confidence if they fail to stabilize prices.
4) It Hurts Your Investment Portfolio
During high inflationary times, asset prices generally go down. Because companies incur high expenses, their profits go down and are even worth less to begin with. The Federal Reserve increases interest rates to fight the high inflation, which hurts businesses even more.
Money becomes that much more expensive to borrow for companies to take a risk on capital expenditures. Inflation hurts because many people’s investment portfolios experienced a rude awakening. Imagine retiring at the height of the 2021 bull market.
Only to have the world crumble down beneath you just the year after. I lost six figures+ in 2022 and that was the most painful thing I ever experienced. It was more painful than the coronavirus pandemic crash of 2020 because no matter what I did, I lost money.
I lost hope that everything will work out by the end. High inflation hurts your investment portfolio performance. Imagine getting fired on top of that.
5) Inflation Hurts Your Trust in the Government
Whether the government wants to admit it or not, the government causes inflation. It’s not the consumers’ fault. High inflationary times was due to the government having easy money policies such as low interest rates and printing more money.
2022 showed everyone just how irresponsible governments are with their easy money policies. They refused to raise interest rates even as inflation was trending higher. They refused to increase rates for an entire six months before finally starting to raise rates.
By then, it was too late. Inflation hurts our confidence in the government to provide a stable financial system with price stability and good employment prospects. 2022 was when my spending was at an all time high due to the high inflation that was apparent.
It opened my eyes to how little the government understands inflation and we should prepare our finances accordingly.
6) Even the Safe Assets Aren’t Safe
The safest asset in the world is theoretically cash. You can’t get more liquid than cash. However, even the safest asset in the world isn’t insulated from high inflation because it loses value every year. In 2022, we lost 7% of our purchasing power.
Our jobs do not give a 7% raise every year! Compensation for the 3 month period ended December 2022 increased a mere 1%. Inflation hurts because there’s no way to go around high inflation. Even the safest assets in the world lose value.
It’s not like we can cut back on the necessities, either. We need rent, food, and water to survive. I personally cut back spending by as much as 15% in 2023 over 2022. I got a roommate, stopped eating expensive dinners, and stopped buying frivolous things.
However, it hurt. 2023 was a miserable year because I didn’t spend as much as I would’ve wanted to. Inflation is the worst thing to happen to consumers.
7) It Hurts Your Sense of Control
Price stability is one thing consumers rely on to live their day to day lives. Inflation hurts because it causes our stability and sense of control to be nonexistent. What we used to buy for $10 now costs $15. Raising Cane’s is a popular chicken restaurant I frequent.
In just 2 years, they increased their Caniac Combo from $10 to $16. A 60% increase. I ordered their smaller meal just because that was too much money for me. In 2022, my life was spiraling out of control. I had no choice but to spend as much as I could today because it was going to be more expensive tomorrow.
Although there were good deals out there, it was getting rarer and rarer. We depend on price stability to feel like we are in control. However, during high inflationary times, we have no control or negotiating power. When I was looking for an apartment to rent in 2022, every landlord said the same thing.
“Pay what we want or find another place”. I couldn’t find a new place at all whatsoever. I had no choice but to say yes and lose.
8) Inflation Hurts: Mass Layoffs Happen
When companies have increased costs, they get rid of the increased costs. Especially if the costs are expensive. Google started 2023 by announcing massive layoffs. Then the former employees have no choice but to accept the higher prices when they have no money coming in!
It’s more important than ever to recession proof your finances.
It’s one thing to pay high prices but it’s another to pay high prices with no job. Government unemployment benefits only last 6 months. I can’t imagine paying high prices when I have no income to rely on. I was lucky in that I didn’t get laid off in 2022. But 2023 is another story.
Companies have no choice but to cut costs to protect profits and generate money for their shareholders. Inflation hurts twice if you lose your job. And another company will more than likely pay less money than your prior job because mass layoffs happen across the entire country.
There are no inflation proof companies. Every company faces high costs during high inflationary times.
9) Basic Necessities See the Biggest Increases
People need to pay for rent, food, utilities, and water. Therefore, demand stays the same even though prices increase. However, when supply is limited, then prices have no choice but to increase even more. Then demand stays the same with dwindling supply and prices increase even more.
And so on and so on until there’s no end. Inflation hurts because basic necessities see the highest increases. People have no choice but to accept the higher price. I had no choice but to accept the high rent prices because everyone else had no vacancy rates to begin with.
I felt powerless. The landlords were winning against me and I had no choice but to accept. Even electricity was increasing in cost every single month. My food budget more than tripled due to the price increases. I felt physical pain every time I went to the restaurant.
Even filling up my car caused me mental anguish. It wasn’t the best time. I no longer am reckless with my money.
Inflation Hurts: My Personal Story
I’m a frugal person. I lived on $20 – $25k/year spending for five years straight, which is very little for a single person. Then came confidence. I was confident I could withstand any and every economic conditions because I was so good at living cheaply. Then 2022 hit.
I was proven wrong by inflation. Very wrong. I spent close to $45k in that year. That’s when I said I am scared. It hurts just writing that. I had no other choice and it pained me every single day, knowing I had to pay the high prices. That’s when I decided something had to change and something had to give.
In 2023, I lived with a roommate, which cut my housing costs by 33%. Then I stopped eating out because eating out is expensive and got a Costco membership. To be honest, I stopped enjoying my life. I didn’t go out for entertainment and slashed my fun budget.
It was painful. I didn’t feel like I had any power because all of my dollars was going towards savings and paying bills. Inflation hurts because it affects every aspect of your spending. However, those changes helped in regaining the power back as a consumer.
In 2023, I lived on a $1.5k/mo budget for a solid six months. I put my money in high yield savings accounts that paid me a risk free 4%. It was $500k into savings accounts, which made me $1.5k/mo. I was living for free. Even though inflation hurts, I was slowly recovering.
It took 2022 AND six months of 2023 before I felt fully recovered. Once I felt recovered, it felt amazing.
Inflation Hurts: There’s a Way to Prepare
Even though high inflation hurts, there’s always a way to defend against it. You are not sitting ducks and your choices dictate your life more than you know. There’s always a way to cut back, spend less, and cut frivolous spending. We frivolously spend more than we know.
Even though it may not feel good, we do what we have to to survive in the short run for long run success. 2023 felt awful. I didn’t go out, I didn’t eat good food, and all I did was stay in my home and work on my blog. Nothing more. Even though I would’ve liked to do other things.
What hurt even more is that I had all my cash and money in risk free savings assets. I personally am a risk loving person and love investing my money into the stock market. However, every day, I saw my money remain stagnant without increasing or decreasing in value.
I was earning a risk free 4%, which helped when I got paid on the 1st of every month, but it still made me feel powerless. My money wasn’t moving up or down, I was stuck. Inflation hurts because the world you knew it to be true is now completely turned upside down.
You will have to give up doing what you love the most because of a lack of price stability. It also doesn’t help that it took a recession and high unemployment to eventually get inflation down to 2%. Inflation hurts because it seems like there’s no way for upward mobility.
Eventually, we get through it and come out stronger than ever before.
Inflation Hurts: 9 Effects of Inflation Shortlist
- Less purchasing power
- Inflation hurts: It hurts your mind
- It ruins your confidence in buying goods
- It hurts your investment portfolio
- Inflation hurts your trust in the government
- Even the safe assets aren’t safe
- It hurts your sense of control
- Inflation hurts: mass layoffs happen
- Basic necessities see the biggest increases
