Investment banking giant warns inflation will get worse before it gets better

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Inflation has been galloping. And prices could rise further before they start falling.


Key points

  • Inflation has been rampant since the summer, causing financial stress for many consumers.
  • Goldman Sachs sounded the warning that the cost of living could rise further before falling.
  • Buying smart, taking on extra work, and cutting your budget could help you fight inflation.

Ask anyone who’s been to the supermarket lately, and you’ll probably hear that groceries have gotten ridiculously expensive. The same goes for gas, clothes, and just about everything else.

We can thank inflation for that. Some inflation is normal. But this year, inflation has been rampant, so much so that it has virtually wiped out wage growth. And now Goldman Sachs is warning clients that the problem may get worse before it gets better.

Prices could go up even more

One of the main reasons that the cost of goods has skyrocketed is that many supply chains have experienced hiccups over the past year. COVID-19 outbreaks have shuttered factories, and weather-related issues have wrecked rail systems overseas that are integral to freight transportation. In addition, hold-ups at national ports and shortages of truck drivers caused problems in transporting the products even once they managed to reach the United States.

Meanwhile, in recent months the economy has improved and consumers have had more disposable income. This is a good thing. But at the same time, demand for products has exceeded supply, and when that happens, prices can skyrocket.

Goldman Sachs is convinced that it will take longer to resolve these supply and demand issues and that prices will continue to rise before falling. And that’s something consumers need to be prepared for.

How to fight inflation

Smart shopping is a tactic to fight inflation. Simply searching for products in multiple stores could result in savings.

But sometimes that’s not enough. If you need a basic product like milk and it’s not on sale anywhere, you may have no choice but to pay for it. (And besides, it doesn’t make financial sense to drive four miles to save $0.25 on milk, because in doing so, you’ll be spending that much on gas.) In that case, you might need to take the one of two approaches to fighting short-term inflation.

First, you can reduce non-essential expenses if you’re currently paying for things that aren’t essential, like cable. But it could make you unhappy. And if you’re already living a very lean lifestyle, that might not even be a reasonable thing to do.

Your second option is to supplement your income with side work. There are plenty of jobs available right now, and there may be plenty of opportunities where you live to take on a second contract and increase your overall bank account balance.

Don’t let inflation get you into debt

The problem with inflation isn’t just that it might force you to spend more of your hard-earned money in the months to come. If you’re already living paycheck to paycheck with no savings, you may reach the point where rising costs force you to build up a credit card balance. Once that happens, you’ll start accumulating expensive interest, which could start a dangerous cycle.

If your budget allows you to cut spending until prices drop, do so within reason. If not, you may need to explore your options for generating higher pay to get through this tough time.

That said, you can also do both at the same time. Work a few extra hours a week and Cutting the fat off your budget a bit could help you fight inflation until it starts to become less of a problem.

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