Biden signs inflation reduction law 1:21
New York (CNN Business) --
A dollar is no longer worth what it used to be.
At the grocery store, you get about 11 cents less than just a year ago.
That dollar covers 15 cents less on utility bills and is worth six cents less on rent and housing costs.
That adds up to a pretty decent chunk of change.
It also explains why, as prices rise across the board, inflation is now a top concern for people.
The rate of inflation is almost as high as it was in the early 1980s. According to the latest July report from the Bureau of Labor Statistics, it was 8.5%, but it would have been even higher were it not for the drop in gasoline prices.
So when will prices stop rising?
The answer is probably never.
But that's not a bad thing, as long as the boosts aren't too high.
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Argentina raises its interest rates to 69.5%, while inflation reaches a record in 20 years
It is not only the United States that faces this problem.
In almost all of the world's advanced economies, the average annual rate of inflation in the first quarter of this year was at least double that of last year.
People all over the world are faced with difficult decisions about how to stretch their paychecks.
Wages and salaries decreased 3.5% over the past year, after adjusting for higher prices.
Why is some inflation good?
How do I get out of credit card debt?
7:07
Inflation doesn't end, it just gets less bad.
And, in fact, we don't want it to end completely.
The Federal Reserve, the US central bank tasked with reducing the rate of inflation through a series of interest rate hikes, is aiming for a target of around 2%.
That means prices will continue to rise, but not by as much.
How have gasoline prices changed in the United States this year?
When people say that inflation is going down, they don't mean that groceries are getting cheaper.
They mean they are not going up as much every month.
Going into a deflationary period is very rare, and the government likes to avoid it if possible, as it usually indicates that the economy is cooling down too quickly.
So yes, inflation will continue for a long time, but you won't notice it as much.
Between the beginning of 1991 and the end of 2019, year-over-year inflation averaged 2.3% per month.
Those are ideal increases, the kind that allow cost-of-living increases to bear, the kind of "in my day, a soda was only five cents" increases that become apparent only after long periods of time.
That doesn't mean some prices won't go down, of course.
The price of gasoline, for example, has fallen significantly in the last two months.
Food prices could also fall.
Food and gasoline prices are more volatile than other expenses because they are affected by external factors such as supply chain problems and Russia's war against Ukraine.
The Fed can't do much to control them and they tend to move in both directions.
But for the most part, prices of goods will remain higher, and consumers will feel no relief until their wages reach the new prices.
For the past four decades, there has been no deflation in basic goods, which exclude food and energy, said Nick Roussanov, a finance professor at Wharton.
Durable goods and services, such as cars, appliances, and education, rarely go down in price.
The Fed is now trying to shorten the time it takes for wages to reach these new prices.
The longer it takes to happen, the more likely Americans are to dip into their savings or take on credit card debt.
It's already happening: Over the past year, credit card debt increased by $100 billion, or 13%, the largest percentage increase in more than 20 years.
The reason for optimism
Inflation will not continue at its current rate forever.
Most economists predict it will drop to that 2% target rate by 2024.
So yes, things will still be painful, but they won't be anything like the inflationary crises we hear about in history class.
Nobody is worried about hyperinflation, at least not in the United States.
That is not to say that high inflation will not continue for a while.
This is how the price of tortillas has increased throughout Mexico in the last 10 years
Some economists believe that inflation could remain slightly elevated between 3% and 4% for decades.
Boomers are retiring and birth rates are declining.
That's squeezing the workforce, says former UK central banker Charles Goodhart, and we're entering an era filled with worker shortages, which means high prices.
Central bankers are paying attention to theory.
Federal Reserve Bank of San Francisco President Mary Daly said immigration restrictions may need to be re-examined to fix the problem.
There have been long periods of high inflation in the US before: in the 1970s, the US economy suffered three recessions during which the underlying problem of inflation never went away.
But monetary policy has since changed.
In that same decade, central banks had multiple objectives: high production and employment and price stability.
Today, the Fed tends to prioritize price stability over those other mandates.
That means Fed Chairman Jerome Powell is instructed to raise interest rates until inflation falls, even if the economy falls with it.
a world crisis
Biden signs inflation reduction law 1:21
The US is likely to be safe from hyperinflation: prices are certainly high, but not unprecedented and they fell last month.
Still, other countries are suffering.
Inflation in Argentina is at a 20-year high of more than 70%, and the country's central bank has raised its main interest rate to 69.5% in an attempt to contain soaring prices.
Meanwhile, Turkey's annual rate of inflation reached almost 80% in June, its highest level in about two decades.
Long-term high prices tend to plunge some countries into periods of instability, which in turn pushes up global food and gasoline prices.
They also have a more severe impact on developing nations and, according to a UN report, could reverse the progress made over the past decade to combat climate change.
Inflation
