When will inflation go down?

We can’t tell you exactly when inflation will go down, but there are guideposts to look for as to when it might ease. Let’s explore what causes inflation, how it can impact retirement, how to combat it and when inflation may go down.
 

What is inflation?

Inflation is when there’s an increase in prices nationally—or globally—and your money doesn’t have the same purchasing power it once did. The same $15 you used to buy lunch on-the-go suddenly may not cover the whole meal. If prices continue to inflate, you might cut into your savings just to cover the same expenses you’ve always had, which then exacerbates the problem.

Key inflation culprits:

• Good old-fashioned supply and demand tells us that an increased demand means an increase in prices.
• Basic needs, such as clothing, food and shelter are things no one can do without. Companies know that the demand for such necessities will always exist, so they can raise prices and reap the benefits.
• When labor costs more, that increase is sometimes offset by charging customers a higher price. Labor costs can be affected by many different things, such as new government regulations or a greater demand for workers.
• Quite simply, if raw materials cost manufacturers more, customers should probably expect a price hike. Supply chain disruptions can also wreak havoc.
• When people make more money, they spend more money, which circles back to supply and demand.

Thanks in part to disruptions caused by the Covid-19 pandemic, inflation has been on the uptick for a few years now—reaching a 9.1% annual rate by June 2022.¹ Ever since, there’s been consistent speculation about when inflation will slow down.

It’s important to note that prices do naturally increase each year, so a gradual climb is to be expected. In fact, according to the Harvard Business Review, the U.S. Federal Reserve targets a 2% increase in prices each year.²

For a deeper dive into what causes inflation, check out our "5 causes of inflation — and how to protect your retirement savings against them," article.
 

Inflation may go down when. . .

So, how do regulators (and citizens) know what to look for when trying to predict when there could be some relief? The Federal Reserve considers a few things when deciding when to cut interest rates, a key part of easing inflation:

• Prices as measured by the Personal Consumption Expenditures (PCE) index
• Consumer Price Index (CPI), which the Bureau of Labor Statistics measures, and can include:
  • Groceries
  • Prices of new and used cars
  • Cost of housing
  • Gas prices
     

Will inflation impact your retirement story?

There's an element of fear surrounding inflation—especially among retirees—and with good reason. People might be tempted to prepare for living expenses that resemble what they are in the present day. But inflation can be a retirement dream killer, given that a fixed income almost ensures you’ll feel the crunch of having less spending power at some point.

But the outlook isn’t all doom and gloom. Even if inflation doesn’t go down right away, an annuity with lifetime income is one way retirees can potentially combat inflation. While we offer a variety of annuities to suit differing needs, a variable annuity with an add-on lifetime income benefit would allow an investor to ensure a minimum amount of money coming in, regardless of market conditions. So if the market tanks and your portfolio suffers because of it, would some guarantees^* help?

And if you’re nearing retirement, or are a new retiree, a registered index-linked annuity would provide growth, flexibility and some downside protection against market volatility. You can choose the investment options that work best for you and the amount of risk you want to take on.

Additional information on how to manage inflation risk can be found in our free "Research, Analysis, and Insights on Addressing Inflation Risk," white paper.
 

Will inflation go down in 2024 Q3 and Q4?

Just to reiterate, we can’t see into the future, but we do have some observations about what may influence things for the rest of the year. The Federal Open Market Committee meets eight times a year to decide whether or not to change the federal funds rate, which is a measuring tool governing lending amongst commercial banks. The group of 12 examines employment, rate of borrowing, and inflation, as well as additional economic factors.

1. There are a few meetings remaining this year, including July 30-31, Sept. 17-18, Nov. 6-7, Dec. 17-18. Rate hikes are possible, but so are rate cuts.
2. There are conflicting ideas about whether rates will remain unchanged until after the Nov. 7 election.³
    

Don’t let inflation dictate your story

The key to outwitting inflation may have less to do with “when will inflation go down?” and more to do with accepting its inevitability—and planning for it. This is especially critical for retirees on a fixed income. Make sure you’re prepared to live the retirement you really want. Read our Retirement Research Center study on inflation.