Inflation refers to a notable rise in prices across most markets.
The most common cause of inflation is a lack of customers making purchases, causing businesses to raise their costs to compensate for the lack of business.
In recent years, supply chain issues also caused significant price increases. Many items were harder to come by, and companies were forced to slow down production to compensate.
This caused prices to gradually increase, especially if businesses were forced to shift to new methods to get supplies.
Inflation does not only refer to products, but also services, ranging from entertainment to healthcare. Inflation often creates a vicious cycle where customers are already struggling with costs.
The rise in costs only makes it harder to purchase items, so both businesses and customers suffer. 2022 was a particularly difficult year for inflation because of supply chain issues as well as the aftermath of the COVID-19 pandemic.
At the height of inflation, costs went up by an average of 10% before experiencing a small drop-off towards the end of the year.
Some areas saw significantly higher increases than others. Listed below are some of the inflation trends predicted for 2023.
One of the industries hit the hardest in 2022 was fuel costs. Fuel costs were already on the rise even before the inflation.
The average cost of gas at the start of 2022 was $2.42 per gallon, based on statistics from the Energy Information Administration. Toward the end of the year, the average was $3.49 per gallon.
There are many reasons why fuel prices continue to shift from inflation.
Fuel industries were hit hard by COVID-19. During the pandemic, travel greatly slowed, which meant there was less of a demand for oil.
As a result, oil prices saw a significant decline. This caused oil companies to store their excess oil, which was an expensive process.
When the pandemic ended and travel returned to normal, many fuel companies were still paying off storage fees from the height of the pandemic. Prices gradually increased as companies sought to make up for earlier losses.
There was also less of a demand for oil, which caused production to cease. Oil production is a lengthy process, and while many companies are back to their usual production rates, the delay caused a spike in prices that is only now starting to die down.
Fuel production was also hurt by the ongoing war in Ukraine. Russia is one of the largest suppliers of oil, but due to trade sanctions and a desire to move away from Russian oil, fuel providers were forced to turn elsewhere.
This caused the global demand for fuel to increase, leading to an increase in prices, with costs hitting as high as $6 in some states over the summer of 2022.
Fortunately, fuel prices are expected to decrease in 2023 as the market stabilizes. Early estimates predict as much as a 50-cent decrease throughout the year.
The pandemic was also a challenging time for car dealerships and manufacturers. With less drivers on the road, there were fewer people looking to buy or sell their vehicles.
Many dealerships were forced to sell vehicles at lower rates or even scrap older models for parts to stay afloat.
Once the pandemic ended, there was a greater demand for vehicles. However, when the supply chain issues started, auto production was hit hard.
Due to a global chip shortage, auto manufacturers were forced to drastically slow production rates. This led to a huge increase in prices for new vehicles.
Less cars being produced also meant there were fewer trade-ins, so the used market greatly slowed as well.
Both new and used cars are expected to see a decrease in price going into 2023.
However, new car prices are only expected to see a small dip, around 2 to 5%. Used cars are estimated to see a much larger drop, around 10 to 20%.
Food prices saw one of the sharpest increases in 2022. Unlike other industries, the pandemic is not the main source of rising food costs.
Grocery stores did well during the pandemic because customers were still going out to shop. Grocery chains did have to spend more on hazard pay and extensive cleaning, but this was mitigated by a steady supply of customers.
Supply chain issues and the war in Ukraine both contributed to an increase in most groceries.
Ukraine was one of the largest providers of grain and corn, which caused spikes in both markets. Fertilizer exports were also hit hard, which caused many food providers to experience significant production delays.
Eggs, flour and butter saw significant price increases, as well as select meats like beef, bacon and ham. Seafood also saw a steady increase in costs.
Toward the end of 2022, some costs dipped, such as eggs and milk. There are more local businesses producing wheat and corn to help offset disruptions from Ukraine.
Unfortunately, the US Department of Agriculture predicts food prices will continue to experience small increases in 2023, with costs rising from 2 to 4%.
Another unfortunate side effect of inflation is a sharp increase in interest rates. Lenders increase interest rates because there are less purchases, which means fewer loans to issue.
The Federal Reserve took steps to combat interest rates, but there was still a significant spike in rates. Because of increased interest rates, there were fewer home buyers in 2022.
Home sales are expected to increase in 2023, which can help with expensive interest and mortgage rates. Housing values are expected to see a small decrease in 2023 as well.
This is unwelcome news for individuals hoping to sell their homes. While it is helpful for buyers, it is still considered risky to purchase property until the interest rates stabilize.
The furniture industry was doing well until supply chain issues caused a decrease in lumber and other essential supplies. Furniture prices saw drastic increases during 2022, hitting as high as a 14% increase in the middle of the year.
Fortunately, toward the end of 2022, there were already decreases in cost. This trend is expected to continue in 2023, with the industry showing greater signs of stability since the start of 2022.