Though inflation is showing signs of cooling, students and community members alike are continuing to feel its effects in their daily lives. Despite some forecasters’ predictions that inflation will gradually decline, it is the professional opinion of others that it is not likely to reach the Federal Reserve’s two percent goal. The lagged effects of tariffs, an expansion in the fiscal deficit and monetary policy that is looser than commonly expected are core drivers for this prediction.
Inflation is an economic concept with a complex nature, dealing primarily with monetary value. Bouchra Elgaou, a Wakefield business teacher and DECA advisor, breaks down inflation into simple language.
“I think the easiest way to define inflation, especially for high schoolers, is that money partially loses its value,” Elgaou said. “So the things that will usually cost you $1 will now cost you $1.50.”
The effects of inflation can be seen in the everyday lives of Americans. Simply walking down the aisles of local stores is enough of an indication for anyone to notice. Wakefield senior Denyla Boose outlines the significant change in the prices of necessities she and her family buy.
“I see the rising cost of things, especially at Walmart, where it feels like [items] as simple as brownie mix or even macaroni and cheese are way more expensive,” Boose said. “And it feels extremely odd because things that used to cost maybe four dollars at best, now cost at least 12 dollars.”
This rise in costs is not a coincidence. Businesses make decisions to make up for the increased costs of products, services and labor caused by inflation and other economic shifts. Tariffs especially are also contributing to the rising prices of consumer goods and services. These are taxes and fees that governments place on goods and services imported from foreign countries. Tariffs typically affect large corporations the most, as they rely heavily on foreign-produced goods. Other than cutting the workforce or other expenses, the most common way companies compensate for inflated input costs is to raise prices for consumers. It’s no surprise that large companies end up being the main culprits in raising consumer prices.
Not every company is built equally when it comes to preparing for inflation and other changes to the market. It is companies with access to more resources and larger profit margins that usually succeed. These companies tend to be the larger corporations.
“Small businesses are more susceptible to the changes in the economy compared to the large ones,” Elgaou said. “The large ones make enough profits that they survive small changes in the markets. However, most small businesses make enough profits [to survive] for one year or two years. So, when an economic change happens, they are not as prepared as big businesses.”
Though pocketbooks around the country are crying in desperation, inflation has its upsides. Given the right context, inflation can actually benefit individuals, especially those in debt. James Popek, an AP Macroeconomics and economics & personal finance teacher at Wakefield, explains such positives.
“If you have high inflation, the borrowers are going to win,” Popek said. “That’s because the debt gets cheaper.”
This is especially beneficial for credit borrowers and those who take out a loan. Money loses its value over time as a result of inflation. Popek elaborates on what this means for loan takers who are paying off their balance.
“When you go [to the bank to] take a loan, they’re going to choose an interest rate based on what they feel like inflation is going to do,” Popek said. “If they think inflation is going to be low in the future, they may give you a low interest rate. If inflation ends up being higher [than predicted], the person that borrowed that money wins because they’re actually paying [the loan] back with money that’s worth less.”
This idea can best be illustrated with an example. Suppose that Jerry borrows $10 dollars from Mary and promises to pay her back $11 next year. This year, one dollar can buy one can of soup, so Jerry is essentially promising to pay back 11 cans of soup next year in exchange for the ability to buy 10 cans this year. Over the course of the year, unexpected inflation hits and the price of soup doubles. This means that Jerry, the borrower, is paying back the value of five-and-a-half cans of soup, so he benefits from this inflation. Mary, the lender, is hurt in this scenario because she thought she was getting more cans of soup in exchange for her loan.
Knowing the challenges economies face helps prepare communities for economic events like inflation. An educated student population is one that is best prepared to enter a blunt reality. Melanie Huckaby is a local community member who believes this notion through and through.
“I believe [schools] are doing a great job as far as adding an economics class [to the curriculum],” Huckaby said. “Some of the projects and topics that [are] discussed in class are real world issues, and [students] are learning how to tackle them and other things that may pop up in daily life.”
