Who’s the richest person in US history?
The answer is John D. Rockefeller (1839-1937). By the time of his death, his net worth was $1.4 billion, representing 1.5% of the entire US economy’s output then. Adjusted for inflation, his fortune would be worth $410 billion in 2024. Mind-blowing, isn’t it? Elon Musk, Jeff Bezos, Warren Buffett, and Bill Gates are among the super-rich of our time. While their net worths are all in the realm of hundreds of billions, they still have a long way to go to unseat Rockefeller.
Wait. What is inflation?
Imagine a time travel machine that takes us back to January 2014. We go to a supermarket and spend $100 on groceries. Then, we jump forward to January 2024. For the same groceries at the same supermarket, we would need to pay $131.85. That, in a nutshell, is inflation.
To put it differently, inflation means:
- Things cost more. Example: $100 in January 2014 = $131.85 in January 2024.
- Buying power drops. Example: $100 in January 2024 = $75.84 in January 2014.
That sounds terrible. Let’s eradicate it!
Well, as it turns out, we can’t.
High inflation means prices are continuously rising. This poses challenges for companies as they struggle with fluctuating production costs. Additionally, inflation erodes our buying power over time, making goods and services more expensive. Consequently, it curbs our desire to spend because we can’t afford as much.
Conversely, deflation—where prices decrease—is also problematic. When prices are expected to fall, businesses may delay investing in new products or services. We may also delay purchases, anticipating further price drops. This reduction in investment and spending can lead to economic stagnation.
So you see, when it comes to taming inflation, governments around the world follow the Goldilocks rule: not too high, not too low, but just right. They peg 2% as the ideal inflation target. For most of the first two decades of the 21st century, the US inflation rate hovered around this goal. However, the Covid-19 pandemic disrupted everything. Inflation crept up to 4.7% in 2021 and then soared to a stunning 8.0% in 2022! The Federal Reserve stepped in and raised interest rates multiple times. Raising interest rates has long been proven an effective way to combat inflation, and it worked this time, too. The US inflation rate dropped to 4.1% in 2023, and if all goes as planned, it would dip to 2.8% in 2024 and 1.8% in 2025.
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Inflation may have been steadily guided back to the right track, but I’m still reeling from the sticker shocks all around me. Groceries, restaurants, coffee, food deliveries, clothes—everything costs more, much more. The pinch is real!
There’s an upside, though. When the world was grounded to a halt during the pandemic and next-day delivery became a thing of the past, I went cold turkey on online shopping. I felt no loss, no anxiety. I realized that for years I had been spending frivolously and mindlessly. Most of my online purchases were impulse buys. I know better now, and the steep price tags everywhere are the best deterrents.
I’ve learned to spend smarter and save more for investments. With this newfound focus on financial discipline, I’ve achieved the freedom to live on my own terms. While immense wealth may not be my goal, the peace of mind that comes with financial stability is priceless.
