Investment Banking Giant Warns Inflation Will Get Worse Before It Gets Better

Inflation has been rampant. And prices could still go up before they start to come down.

Ask anyone who's been to the supermarket recently, and you'll probably hear that groceries have gotten ridiculously expensive. The same holds true for gasoline, apparel, and just about everything else.

We can thank inflation for that. Some amount of inflation is normal. But this year, inflation has been rampant, so much so that it's basically wiped out wage growth. And now, Goldman Sachs is warning its clients that the problem is likely to get worse before it gets better.

Prices could climb even more

A big reason why the cost of goods has soared is that many supply chains have experienced hiccups over the past year. COVID-19 outbreaks have shuttered factories, and weather-related issues have destroyed railway systems overseas that are integral to the transportation of goods. Plus, hold-ups at domestic ports and truck driver shortages have caused snags in moving products around even once they've managed to reach the U.S.

Meanwhile, in recent months, the economy has improved, and consumers have had more disposable income. That's 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 more time to work out these supply and demand issues and that prices will continue to creep up before dropping back down. And that's something consumers need to gear up for.

How to fight inflation

Shopping savvily is one tactic for fighting inflation. The simple act of researching products at multiple stores could result in some savings.

But sometimes, that's not enough. If you need a staple item like milk and it's not on sale anywhere, you may have no choice but to pay up for it. (And besides, it doesn't make financial sense to drive four miles out of your way to save $0.25 on milk because in doing so, you'll spend that much on gas.) In that case, you may need to take one of two approaches to combat near-term inflation.

First, you can cut back on nonessential spending if you're currently paying for things that aren't necessities, like cable. But doing so could make you miserable. And if you're already living a very pared-down lifestyle, that may not even be a reasonable thing to do.

Your second option is to boost your earnings with a side job. There are many jobs available right now, and there may be ample opportunities where you live to pick up a second gig and increase your overall bank account balance.

Don't let inflation drive 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 coming months. If you're already living paycheck to paycheck without any money in savings, you may reach the point where rising costs force you to rack up a credit card balance. Once that happens, you'll start accruing costly interest, which could kick off a dangerous cycle.

If there's room in your budget to cut back on expenses until prices come down, do so to a reasonable extent. Otherwise, you may need to explore your options for generating a higher paycheck to get through this rough patch.

That said, you could also do both at the same time. Working a few extra hours a week and trimming a little of the fat in your budget could help you battle inflation until it starts to become less of an issue.