Kevin O'Leary Says Inflation Is 'Self-Inflicted.' Can We Break the Cycle?
- Many consumers have been struggling with sky-high inflation this year.
- Cutting back on spending could help consumers not just individually, but as a whole.
Who wouldn't want to see inflation go?
Since the start of 2022, many people have been struggling to make ends meet. Given that everything from gas to groceries to apparel has been more expensive, it's easy to see why so many people are raiding their savings accounts and running up credit card tabs just to function.
In July, the Consumer Price Index, which measures changes in the cost of consumer goods, rose 8.5% on an annual basis. That's an improvement from June's 9.1% reading, but it doesn't mean that soaring inflation is about to come to an end.
Quite the contrary -- we could still be in for many months of sky-high living costs. But Shark Tank's Kevin O'Leary insists that inflation is self-inflicted -- and cutting back on spending could bring it down.
It pays to spend less
Why has inflation been so out of control? It all boils down to a mismatch between supply and demand.
If you took Economics 101, you may remember that when the demand for a given commodity exceeds the availability of it, its price will generally rise. That's what's been happening in our economy.
In 2021, stimulus policies pumped a lot of money into Americans' bank accounts at a time when supply chains were battered due to the pandemic. As such, consumers began buying more goods when they weren't widely available, thereby driving their prices up.
Meanwhile, supply chains have slowly but surely been rebounding from the hit they took last year. But that hasn't happened at a rapid enough pace to bring the cost of goods down. And so now, the only way to get inflation back to more moderate levels is to slow consumer spending.
The Federal Reserve is working on that. It's been steadily hiking up interest rates to make borrowing more expensive in the hopes that consumers will start to spend less, thereby narrowing the gap between supply and demand.
So far, its efforts seem to be paying off, albeit modestly, as evidenced by July's inflation reading. But making borrowing more expensive isn't the only solution to rampant inflation.
Rather, if we believe, as O'Leary says, that inflation is self-inflicted, we can all, as individuals, cut back on spending. That should not only help our own financial situations improve, but also, help put an end to this terrible cycle.
Should you cut back on spending?
If you're doing well financially, you may not feel compelled to cut your spending. But many people are barely scraping by these days. If you're in that boat, it pays to look at cutting back on leisure spending until you're able to shore up your finances, or until prices start to come down. And if you're managing to pay your recurring bills but don't have much savings, that is another reason to start spending less.
To be clear, this doesn't mean you have to feel guilty every time you buy something for fun. But if you start cutting back modestly, you may come to appreciate the financial breathing room you buy yourself, all the while knowing you're doing your part to break the cycle of rampant inflation.
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