Inflation: How consumers are navigating price hikes

Yahoo Finance Contributor Vera Gibbons discusses ways Americans are coping with rising inflation.

Video transcript

JAY POWELL: So I think the word transitory has different meanings to different people. To many, it carries a time, a sense of short-lived. We tend to use it to mean that it won't leave a permanent mark in the form of higher inflation. I think it's probably a good time to retire that word and try to explain more clearly what we mean.

ZACK GUZMAN: Retiring the word "transitory" when it comes to inflation. Of course, a lot of Americans out there around the country would have already been ahead of Jay Powell there in saying they've noticed inflation taking place for quite some time, whether you look at gas prices right now and filling up the tank, up by about 50% year over year, to food prices, energy prices at home. Everything across the board seemingly more expensive. And for more on that, I want to bring on Yahoo Finance's Vera Gibbons, Yahoo Finance contributor who's been tracking this for us and talking with consumers out there about what they're seeing and how they're trying to fight back against it. Vera.

VERA GIBBONS: Well, you know, one consumer I spoke to said that when gas prices hit-- was costing her $60 to fill up her car, she started to take drastic measures to try to save more and spend less. So she is now driving for Lyft. At 45 years old, she now has taken in a roommate. She bought a space heater because she's anticipating a very expensive winter. She's shopping more strategically at the grocery stores. She's making all sorts of changes to try to weather the storm.

Her take is that this isn't transitory. We're up against the most rapid increase in prices we've seen in 31 years if you look at the annual rate of inflation. And while initially, it was limited just to pandemic disrupted categories-- used cars, technology, electronics-- it is widespread, and it's accelerating at a very disturbing pace, particularly at the pump, that when you see the gas prices are up nearly 50%, that really inspires people to make these drastic changes, so that they can do better.

JARED BLIKRE: And Vera, when we think about inflation and its causes, as you wrote in your notes to us today, you said it can come from three sources-- a rapid increase in demand or limited supply or consumer psychology. But in fact, we kind of have all three here running at the same time, don't we?

VERA GIBBONS: Yes, this is what an economist from Moody's was telling me that, first of all, inflation has been dormant for some time, so we've forgotten what it's actually like. Also, inflation is usually driven by one of three things, as you pointed out, lack of supply, an increase in demand, or consumer psychology. The problem is we have a convergence of all three factors happening simultaneously.

So it's very different from previous bouts of inflation that we've experienced. And the problem is that the more psyched out that consumers get or the more anxious they get about inflation-- they're stockpiling, they're doing all sorts of crazy things to try to deal with inflation to manage the runaway inflation-- that sort of exacerbates the situation and prolongs the inflationary period.

ZACK GUZMAN: Yeah, we talk about when we might get back to normal. Of course, you know, the Biden administration has been working hard on kind of alleviating some of those supply issues. We've heard from Jay Powell talking about how those were not something that they originally forecast because they didn't see that coming. Of course, they knew the demand might be an inflationary piece of the puzzle. But maybe it didn't see the supply issues. And he has a forecast of maybe some of this keeping up until mid next year. So I mean, if you're an American out there who is now paying more for all this, it doesn't necessarily sound great to think, uh-oh, things might be more costly for a while.

VERA GIBBONS: It doesn't sound great. I mean, some of the policymakers and some of the economists said initially that things would level off by the end of the year. Well, we are at the end of the year, and things haven't leveled off. In fact, inflation is now at a point where it's actually runaway inflation. So, some of the economists that I spoke to said that in the near term, expect price increases to actually continue, which is why we'll see more American consumers sort of hunker down, sort of buckle down in their spending and try to save more. But in terms of when things will actually settle down, that's all over the map. I've heard 2022, 2023, 2024. And of course, this variant throws a monkey wrench into even the best projections.

JARED BLIKRE: Yeah, and it seems like we're going to be talking about this for some time. Vera Gibbons, Yahoo Finance contributor, appreciate your time here.