By mid-2021, what had appeared to be a seemingly smooth road to economic recovery, was effectively derailed by skyrocketing fuel prices, persistent workforce shortages, and supply chain disruptions — further complicated by war in Ukraine. As of March 2022, the U.S. is experiencing the highest rates of inflation since the roaring 1980s.

In this article, we’ll explain what inflation is, what’s causing it now, and how to protect yourself or small business from its effects. We've also included some predictions on how long inflation will be around, and lastly — why does bacon cost so much?

What Exactly is Inflation?

When prices of goods increase it’s called inflation. It’s really just that simple. Under “normal” circumstances inflation rates hover at a modest 1-2% increase year over year. However, since mid-2021, the interest rates have risen to 7.5%.

The U.S. Bureau of Labor calculates inflation using an equation totaling the costs of a variety of products and services from different business sectors and compares them over a set time frame. The percentage of those increases is called the Consumer Price Index (CPI).

Why Can Inflation Cause More Inflation?

Simply put, inflation is caused by supply and demand. Remember the shortage of toilet paper in 2020? Reduction in wood products manufacturing coupled with a populace terrified of contracting Covid created a scarcity mindset — and people began hoarding toilet paper.

Ironically, inflation tends to instigate spending which further amplifies inflationary conditions as consumers stock up on goods, or other purchases before their dollars lose more value.

This spending frenzy is generally followed by drastic belt-tightening measures to conserve what’s left. When consumers spend less on discretionary items — like vacations, dining out, or entertainment — the effects are felt throughout the economy.

Moreover, when personal income is only increasing by 2-3%, a 7% jump in prices greatly diminishes consumers' purchasing power. Less consumer spending over time can lead to business closures, layoffs, and further price increases in a shrinking marketplace, e.g., less supply + more demand = higher prices.

How Can I Protect Myself or My Business Against Inflation?

As an individual or small business, there are a number of ways to preserve the value of your dollar. Here are a few inflation-proof investments to consider.

Purchase Real Estate: Buy a house or commercial real estate — preferably with a fixed-rate mortgage — then hold on to it. Real estate traditionally increases in value year over year, with the occasional bubble followed by a market correction. If interest rates increase, you'll be paying down your mortgage debt on the lower rate AND accruing equity.

Money Market Funds or Treasury Inflation-Protected Securities (TIPS): While not generally high earning, money market funds are a smart investment during periods of rising inflation. Why? Fluctuating interest rates automatically adjust upwards, so, there's no need to chase higher-yielding cash-type investments.

Invest in Commodities: Oil, grain, and pork bellies (yes, think bacon) enjoy leverage in the markets and can flex their pricing power during times of inflation. Small businesses can consider investing in commodity businesses, such as healthcare companies, with strong profit margins, which are a good place to safeguard your capital against inflationary losses.

Avoid Long-Term Fixed-Income Investments: Long-term fixed-income investments are terrific investments — when inflation and interest rates are falling. With interest rates rising (along with inflation) you'd be better off putting your money in fixed-income investments or shorter-term alternatives, (see money market funds).

Convert Adjustable-Rate Debt to Fixed-Rate: Inflation is here. Now is a good time to roll your adjustable-rate debt over to fixed rates, including business lines of credit, credit cards, and your home or business real estate mortgage.

Invest in Growth and Equity Products: Another safe bet during inflationary times is investing in growth-type stocks or funds. These can include:

• Building materials
• Energy
• Food
• Healthcare
• Technology

Why Does Bacon Cost So Much?

We use bacon to demonstrate the interconnectedness of a global economy, and its near-collapse during the onset of the pandemic. In the span of just two years the price of bacon has increased by 28%.

Why? The trickle-down effects of surging crude oil prices are reflected throughout the entirety of the economic food chain. In 2021, crude was selling at $63 a barrel. As of early March 2022, prices had increased by 66%, and the highest price we've ever seen at $125 a barrel.

Moreover, increases in livestock feed costs, food processing labor shortages, continued transportation and supply chain issues, coupled with an insatiable demand for pork products, have resulted in breathtaking price increases for this staple food.

The pound of bacon you paid $7 for in 2020, costs well over $9 today. If you consume a pound a week, you saw your bacon budget increase by $136 – or nearing $500 a year at present prices. It’s no wonder that BLT cost twice as much at the lunch counter these days — along with everything else.

It’s not just bacon. Current BLS data also reveals whole milk prices are up 7.2%, along with the less necessary staples like whiskey, cigarettes, and beer, whose prices increased 4%, 8%, and 12%, respectively, since late 2021.

When Will Inflation End?

Taken individually, the unexpected events spanning the past two years might have caused a temporary increase in prices that may have only impacted a handful of business sectors. Instead, we’re in the eye of a perfect storm of runaway inflation.

There is some light at the end of the tunnel. Goldman Sachs optimistically predicts inflation decreasing to 4.6% by the close of 2022 with further drops to 2.9% by 2023. However, with sanctions against Russia looming and continued chaos in the oil and natural gas markets, predicting when inflation will end is very difficult.

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