What if your savings lost nearly 10% of their value in just one year? It happened in 2022, when U.S. inflation surged 9.1% – the highest jump in 40 years . Prices for everything from gas to groceries skyrocketed, squeezing household budgets. If you’re trying to save money, inflation isn’t just an economic buzzword; it’s a silent thief that erodes your purchasing power while you sleep. In this article, we’ll break down the current state of inflation, how we got here, how new tariffs could make things more expensive, and what to expect (and do) in the next few years. Let’s dive in so you can protect your wallet.
What Is Inflation (and Why It Matters)?
Inflation simply means that prices are rising over time, which reduces the buying power of your dollar . In other words, as inflation goes up, each dollar you have buys a smaller amount of goods or services than before. For someone saving money, this is crucial: if your savings aren’t growing as fast as prices are, you’re effectively losing money. A carton of eggs, a gallon of gas, or a month’s rent – all these everyday expenses creep up when inflation is high. Inflation is typically measured by indexes like the Consumer Price Index (CPI), which tracks the cost of a “basket” of typical consumer purchases. When the CPI is up 3% from a year ago, that’s a 3% inflation rate – meaning on average, things cost 3% more than they did a year prior.
Why does this matter so much? Because inflation directly impacts your cost of living and your savings. A moderate inflation (the U.S. Federal Reserve targets around 2% annually) is normal in a growing economy. But when inflation runs hot – say 5%, 9%, or more – it can outpace wage growth and the interest you earn on savings. That’s when people feel the pain: you might get a raise, but still afford less than before. Over time, unchecked inflation can erode the value of pensions, savings accounts, and cash stashes under the mattress. In extreme cases, it can shake confidence in the economy. Keeping inflation in check is critical so that your hard-earned dollars hold their value.
A Brief History of Inflation in America
Inflation isn’t a new phenomenon – it’s been part of the economic story for as long as we’ve had money. But its intensity has varied wildly over time. Looking back at U.S. history, there have been periods of both extreme inflation and painful deflation:
- Post-World War I Spike: In June 1920, U.S. inflation hit an all-time record of 23.7% . This burst came after World War I amid surging demand and limited supply, and it’s the highest inflation Americans have ever experienced. (Imagine prices climbing nearly 24% in one year – that’s how turbulent the economy was then.) A few years later, the Great Depression brought the opposite problem: deflation, where prices fell and money gained value – sounds nice, until you realize it came with massive unemployment and economic collapse.
- The Great Inflation (1970s–early 1980s): Fast forward to the 1970s, and the U.S. endured what economists call the “Great Inflation.” Oil shocks, heavy government spending, and monetary policy missteps fueled persistently rising prices. Inflation more than doubled in the early 1970s, jumping to 8.8% in 1973 and continuing to climb . By 1980, it peaked at around 14% – a level not seen before or since in the postwar era . Americans vividly remember waiting in gas lines and watching prices for basics soar. Those who lived through it saw how inflation can ravage purchasing power: the steady price increases “created a time of tremendous financial pressure for most Americans,” with people finding it “difficult to make ends meet” and having to make hard choices about their spending . This period was so dire that it “eroded their standard of living and their confidence in the country’s leadership” . It took drastic action – the Federal Reserve, under Chair Paul Volcker, jacking up interest rates to historically high levels – to finally break the back of inflation in the early 1980s.
- The Great Moderation (1980s–2010s): After that painful lesson, inflation in the U.S. settled down for a long time. From the mid-1980s until 2020, prices rose fairly gradually. For decades, inflation mostly hovered in the low single digits, often around 2-3% or even lower. In fact, after 1982, the U.S. didn’t see double-digit inflation again – the last time it exceeded 10% was back in 1981 . There were bumps (for example, prices jumped ~5% in 1990 and 2008 briefly), but nothing like the 1970s. This stability lulled many into expecting low inflation as a given. Saving money during this era was relatively straightforward: you could reasonably assume prices next year would be only a bit higher than today.
- The Recent Spike (2020–2022): Then came a perfect storm. In 2020, the COVID-19 pandemic sent the economy into a brief tailspin – and initially inflation dipped (even a bit of deflation) as demand collapsed. But massive government stimulus, supply chain chaos, and pent-up consumer spending reversed that quickly. By 2021, inflation was picking up steam, and by mid-2022 it exploded to levels not seen in 40 years. Consumer prices in June 2022 were 9.1% higher than a year earlier – the biggest 12-month increase since 1981 . Trillions in stimulus money, combined with consumers eager to spend after lockdowns, met product shortages and shipping backlogs. The result? Too much money chasing too few goods, leading to across-the-board price hikes. Gasoline, groceries, cars, rent – you name it, it got more expensive. The surge was also fed by Russia’s war in Ukraine in early 2022, which drove up global oil and grain prices . The Federal Reserve responded by rapidly raising interest rates (the fastest hikes in decades) to cool the economy and tame inflation . By late 2022, those actions, along with easing supply issues, started to slow the price spiral.
The takeaway from history: Inflation can accelerate quickly and inflict real pain, but it can also be reined in with tough measures. Periods of high inflation have always eventually been followed by periods of stabilization – though often at the cost of a recession or other economic difficulties. For today’s savers, understanding this history is more than a lesson in economics; it’s a reminder that high inflation isn’t permanent. But while it lasts, it can seriously undermine your financial plans, so you have to stay vigilant.
US inflation has varied dramatically over the past century. The chart above shows year-over-year inflation rates from 1913 to 2025, highlighting major spikes like the post-WWI surge (~23% in 1920) and the 1970s Great Inflation (peaking ~14% in 1980) . In contrast, the 2010s saw very low inflation, until the sharp uptick in 2021–2022 (reaching 9.1% in June 2022) . This historical perspective underscores that while inflation is usually mild, it can erupt during extraordinary times.
The Current State of Inflation (2025)
After the 2022 peak, many people are asking: Where do we stand now? The good news is that inflation has cooled off significantly from its recent highs. As of mid-2025, U.S. inflation has come back down to around 2.7% year-over-year – much closer to the normal range. In fact, by early 2023 inflation had dropped to the 3-4% range, and it has hovered there or lower through 2024 into 2025.
For context, that 2.7% figure (the annual rate as of June 2025) means that on average, prices are 2.7% higher than they were in June 2024 . This is only a little above the Fed’s 2% target, and a far cry from the 9%+ rates we saw in 2022. How did we get back here? A combination of factors helped: the Federal Reserve’s aggressive interest rate hikes in 2022-2023 cooled off consumer and business spending, supply chains unsnarled (shipping costs fell and goods shortages eased), and some pandemic-era distortions unwound. Energy prices, for example, actually dropped in late 2022 and 2023, which helped bring headline inflation down. By June 2025, the government reported that **energy prices were 0.8% lower than a year earlier (gasoline was notably cheaper than its 2022 highs).
That said, not everything is cheap. Core inflation – which strips out volatile food and energy costs – is still running a bit high, around 2.9% as of mid-2025 . Some everyday costs are still rising faster than overall inflation. For instance, food prices were up about 3.0% year-over-year in mid-2025 , meaning your groceries might still be getting noticeably pricier. Categories like shelter (rent) have seen persistent increases (though at a slower pace than in 2022). And services in general (like childcare, haircuts, or restaurant meals) have been climbing as wage pressures persist.
In short, the current landscape is one of moderating inflation – a relief from the steep price jumps of a couple years ago – but not quite back to the ultra-low inflation world we knew pre-2020. Prices are still rising, just at a more normal speed. For savers, this is a mixed bag: the worst erosion of your dollar’s value has stopped for now, but you’re not entirely off the hook. A 2-3% inflation rate still means you need your savings to earn at least that much per year to tread water in terms of purchasing power.
One more thing to note about today’s inflation: its causes have shifted. Early in the post-pandemic surge, it was about goods shortages (think: car prices spiked because of chip shortages, furniture and appliance prices jumped due to shipping delays) and a sudden demand boom. Now, inflation pressures have rotated more into services and wages – and new factors are emerging, like tariffs (more on that next). Policymakers are watching these trends closely. Fed Chair Jerome Powell has indicated cautious optimism that they’re getting inflation under control, but he’s also warned that new challenges (such as higher import tariffs or geopolitical shocks) could nudge prices upward again . In fact, Powell noted in mid-2025 that tariffs could start to push up prices in the second half of the year . That brings us to a key part of the inflation story that’s often overlooked: the role of tariffs.
How Tariffs Influence Inflation
Tariffs – essentially taxes on imported goods – can have a significant impact on inflation. Here’s why: when the government puts a tariff on a foreign product, that product immediately becomes more expensive for American importers to buy. Those higher costs often get passed on to consumers in the form of higher prices on store shelves. In short, tariffs act like a price hike on imported items, which can drive up the overall cost of living if enough products are affected .
Think of it this way: if a tariff is placed on imported steel, anything from cars to construction equipment that uses steel might get more expensive. Tariffs on electronics or clothing mean your next smartphone or pair of jeans could cost more. It’s essentially manufactured inflation – policy-driven price increases on top of whatever the market is doing.
We’ve actually seen this play out recently. A few years ago, during the 2018–2019 trade war with China, the U.S. slapped tariffs on thousands of goods. Economists studying that period found clear evidence that those tariffs raised consumer prices. In fact, Federal Reserve researchers noted that the 2018–19 import tariffs were fully and quickly passed through to U.S. consumer prices, contributing a measurable bump in inflation . One Fed analysis estimated those tariffs added about 0.1–0.2 percentage points to core inflation at the time . That might sound small, but remember, core inflation in 2019 was around 2% – so tariffs were responsible for roughly a tenth of it. In an environment of otherwise low inflation, tariffs were a notable upward push.
Now, fast forward to today. In 2025, tariffs are back in the spotlight. U.S. trade policy has seen a revival of tariffs on a variety of imports. For example, the administration announced new tariffs on dozens of countries in mid-2025, targeting goods from apparel and appliances to footwear and produce . These moves are partly aimed at protecting U.S. industries, but they carry an inflationary side effect. We’re already seeing “early signs of tariff impact” in the consumer price data . Items that are subject to the new levies have begun creeping up in price. An investment analyst noted that categories exposed to tariffs – like furniture, appliances, and some food items – showed upward pricing pressure as soon as tariffs were imposed . Another category like vehicles (also exposed to tariffs) stayed flat for now, but many economists caution that companies can only absorb extra costs for so long.
Indeed, businesses often try strategies to soften the blow of tariffs – such as finding alternate suppliers, cutting margins, or tweaking product supply chains. And for a few months, that can work. The recent “muted” inflation readings earlier in 2025 suggested companies were largely shielding consumers from price shocks of tariffs . But as one economist warned, “Strategies used by companies to avoid passing on cost increases to consumers are not eternal.” Eventually, if tariffs remain or increase, businesses have to raise prices to stay profitable. We may be reaching that point now.
Just look at the data from June 2025: overall inflation ticked up a bit, and analysis suggests roughly one-third of that monthly CPI increase was due to higher tariffs . Think about that – one out of every three extra dollars in price increases came from a policy change, not underlying supply or demand. EY-Parthenon Chief Economist Gregory Daco estimated that about 33% of June’s inflation uptick could be attributed to the new tariffs . This is a clear indicator that tariffs are already adding fuel to the inflation fire, even with total inflation still relatively low.
And there’s likely more to come. The Federal Reserve Bank of Boston recently ran the numbers on proposed new tariff policies and their potential inflation impact. Their findings were eye-opening: if the U.S. were to implement some of the more aggressive tariff plans (for example, an additional 60% tariff on imports from a certain large country, as was floated in one campaign proposal), it could add as much as 2.2 percentage points to core inflation in the short run . Even less drastic tariff hikes could easily add 0.5 percentage points or more to core inflation . In other words, if underlying inflation would have been 2%, these tariffs could make it 2.5% – and the bigger scenario could boost it from 2% to over 4%. That’s huge.
Federal Reserve officials are keenly aware of this. They’ve explicitly called out tariffs as a risk factor for the inflation outlook. Because unlike, say, a surge in oil prices (which the Fed can’t directly control), tariffs are a policy lever – something that could be adjusted if inflation gets out of hand. However, tariffs are often driven by political goals (like protecting jobs or pushing trade partners to negotiate) so they might not go away quickly. Jerome Powell’s warning that tariffs could “start to push up prices” in late 2025 is essentially the Fed saying: heads up, this could complicate our fight against inflation.
To sum up: **Tariffs tend to push prices up – that’s their direct effect. We’re seeing it already in certain goods. If you’re a consumer or saver, tariffs can mean the cost of living rises faster than it otherwise would. A tariff is essentially an external factor making your dollar a bit weaker in terms of what it can buy. Keep an eye on news about trade policies, because they aren’t just political theater – they hit your pocketbook at the checkout line.
What’s Next: Inflation Forecasts for the Next Few Years
What should we expect for inflation in the coming years? Will it stay tame, surge again, or settle somewhere in between? Expert forecasts suggest a cautiously optimistic outlook, but with a few important caveats.
The Federal Reserve’s own projections (as of mid-2025) indicate that inflation will stay somewhat above their 2% target for a while longer, then gradually ease back down. In June 2025, the Fed’s median forecast saw inflation (specifically PCE inflation, the Fed’s preferred measure) around 3.0% at the end of 2025, and not returning to roughly 2% until year-end 2027 . In other words, the Fed is preparing for inflation to be a bit “sticky” – coming down, but slowly. Why the delay in getting back to 2%? In part, officials explicitly mention factors like tariffs keeping inflation elevated in the near term . Those trade frictions add a layer of price pressure that didn’t exist in the low-inflation 2010s.
By 2026, many economists anticipate U.S. inflation will be much lower than the recent past – likely in the 2%–3% range – assuming no major shocks. The era of 5%–9% inflation we saw in 2021-2022 is widely expected to be behind us. However, “expected” doesn’t mean guaranteed. There are some wildcards that could send inflation up or down beyond the baseline forecast:
- Tariff Trajectory: As discussed, if more tariffs are added or existing ones stay in place, we could see a few extra tenths of a percent added to inflation each year. Conversely, if trade tensions ease and tariffs are removed, it could help bring prices down a bit (or at least relieve upward pressure).
- Energy Prices: Oil and gas are the classic swing factors. A geopolitical event that spikes oil prices can feed directly into inflation (raising transportation and utility costs). On the flip side, continued shifts toward renewable energy and efficient tech could keep energy prices moderate.
- Wages and Services: A tight labor market (lots of job demand, low unemployment) has been pushing wages up, which is good for workers but can lead businesses to raise prices for services. If wage growth stays high, it can sustain inflation on the services side. If the job market cools, service inflation might ease.
- Monetary Policy Adjustments: The Fed has been raising interest rates to fight inflation. By 2025, they paused rate hikes and even signaled potential rate cuts as inflation came down. If inflation flares up again, the Fed could hike rates further, which would slow the economy more forcefully (risking recession). If inflation behaves, the Fed might gently lower rates, which could stimulate the economy a bit but also they’ll be careful not to reignite price pressures. It’s a balancing act, and their decisions in 2025–2026 will depend heavily on the monthly inflation data. For now, analysts think the Fed will hold rates relatively high through 2025 until they are sure inflation is defeated .
Broadly, the consensus is that the worst of the inflation storm has passed. The next couple of years will likely see inflation in a moderate band – not crazy high, but perhaps a tad above the ideal 2%. The Federal Reserve, for one, projects “3-ish%” inflation in 2025, then closer to 2% by 2027 . This is essentially a soft landing scenario: price growth slows without crashing the economy. It’s worth noting that this outlook already bakes in some tariff impact – in fact, the Fed bumped its 2025 inflation forecast up by about 0.3 percentage points after the latest tariff announcements, acknowledging that these trade policies will exert upward pressure .
Of course, forecasts can be wrong. If there’s one thing recent years taught us, it’s to expect the unexpected. Another pandemic, a major war, a financial crisis – any of these could throw inflation predictions out the window. But barring such shocks, a reasonable planning assumption for savers is that inflation might run in the 2%–3% range for the next few years, gradually trending down if all goes well. That means your money will likely keep losing a bit of value each year, but not nearly as dramatically as it did during the 9% inflation burst.
For people trying to save money, this outlook is a mixed blessing: we’re not in the runaway inflation scenario anymore (good news for your grocery bills), but we also aren’t back to the rock-bottom inflation of the 2010s. You’ll want to remain vigilant and make sure your saving and investing strategy is prepared to handle a world where inflation, while moderate, is not zero. In the next section, we’ll look at exactly that – what you can do to beat inflation or at least not get beaten by it.
How You Can Protect Your Money from Inflation
Even moderate inflation can eat away at your savings over time, so it’s smart to take action and shield your finances. Here are some practical strategies to stay ahead of rising prices:
- Leverage High-Yield Savings Accounts: Don’t settle for the near-zero interest rates of old. These days, many banks and credit unions offer high-yield savings accounts paying around 4%–5% APY . Some of the top nationwide accounts even offer 5.00% APY as of mid-2025 . By keeping your emergency fund or short-term savings in one of these accounts, your money can grow almost as fast (or even faster) than prices are rising. In fact, with inflation around 3%, a 4-5% yield means your cash is actually gaining purchasing power again. (Just remember that if the Fed lowers interest rates in the future, these savings yields may come down – so take advantage while they last.)
- Consider Inflation-Protected Bonds: One of the safest ways to combat inflation is to use financial products designed for that purpose. Series I Savings Bonds (I-Bonds), for example, are U.S. government bonds that adjust their interest rate with inflation, guaranteeing that your investment keeps up with consumer prices. Right now, new I-Bonds are offering an annualized rate of 3.98% for bonds issued May–October 2025 . That rate will reset every six months based on inflation, so if inflation rises, the rate will likely go up, and if inflation falls, it goes down. I-Bonds are a low-risk, inflation-fighting tool – great for medium-term savings goals. (They do have purchase limits and some restrictions on when you can cash out, but even holding a small portion of your savings in I-Bonds can provide a nice hedge against inflation.)
- Be Smart with Budgeting and Purchasing: During inflationary times, a dollar saved is more than a dollar earned (because that saved dollar also avoids future higher prices). Some tactics: buy in bulk or stock up on non-perishable goods you use regularly before their prices increase further. Take advantage of sales and use coupons – the discount is effectively larger when prices are high. If you know you’ll need a big-ticket item and you see a good price now, consider buying sooner rather than later (delaying a necessary purchase in an inflationary environment can mean paying more down the road). On the flip side, avoid unnecessary new debts on items that are wants rather than needs; high inflation often comes with higher interest rates, so carrying credit card debt or other variable-rate debt is extra costly. In short, cut unnecessary expenses and shop strategically – your goal is to get the most value out of each dollar, especially when each dollar is quietly shrinking in value each year.
- Invest for Long-Term Growth: If you’re saving for the long haul (retirement, for example), remember that historically the stock market and other assets have outpaced inflation over extended periods. Consider investing in a diversified portfolio of stocks, real estate, or other assets as part of your plan. Equities, for instance, have an average return that beats inflation in the long run, though they come with short-term ups and downs. Real estate or REITs (real estate investment trusts) can provide income and also tend to rise in value with inflation (rents can increase, property values often go up when construction costs rise). Even commodities or commodity-indexed funds can be a hedge if inflation is driven by resource scarcity. The key is diversification – don’t put all your money in cash under the mattress. Assets that grow can protect you because if inflation makes prices go up, well-chosen investments may increase in value too. (Tip: If you’re new to investing, broad index funds or ETFs that track the market can be an easy way to get started. They’ll capture general growth and are low-cost.) Over time, investing can help preserve and increase your purchasing power, whereas cash left idle in a no-interest account definitely will not.
Lastly, and perhaps most importantly, stay informed. Inflation is not some mysterious force – it’s a statistic you can follow, and it directly affects your money. Keep an eye on the monthly inflation reports (CPI releases) to understand the trend. Is inflation trending up again, or continuing to moderate? Knowing this can help you adjust your strategy – for example, locking in a CD rate before the Fed potentially cuts rates, or choosing a fixed-rate mortgage when inflation (and interest rates) are low.
Bottom line: You can fight back against inflation’s effect on your savings. By earning interest that meets or beats inflation, being strategic in spending, and investing wisely, you’ll ensure that inflation remains a minor annoyance, not a major financial setback.
Conclusion: Stay Alert and Take Action
Inflation may be called the “silent thief,” but now you’re equipped with the knowledge to stop that thief in its tracks. We’ve covered how inflation is cooling but not gone, how history has taught us hard lessons about letting prices spiral, and how current factors like tariffs could throw a wrench in the works by making things costlier. The coming years look favorable for consumers compared to the recent past – no more runaway price explosions, if forecasts hold true – but there’s no guarantee inflation will just fade into the background.
As someone focused on saving money, your job is to keep one eye on inflation and the other on your financial strategy. Little adjustments – whether it’s moving savings to a higher-yield account or snagging a good deal when you can – will keep you ahead. Remember, even “low” inflation erodes value over time, so proactive steps are your best defense.
Don’t let your hard-earned dollars lose value. Commit to an inflation-aware plan for your money starting today. Adjust your savings and investments as needed, follow the tips above, and regularly revisit your budget to squeeze the most out of every dollar. By doing so, you ensure that whether inflation heads up, down, or sideways, you’re prepared.
Finally, stay informed and keep learning – the economy is always evolving, and knowledge is power (and savings) in your pocket. If you found this article helpful, consider sharing it with friends or family who might also benefit. And join our community (subscribe to our newsletter, blog, or updates) for more insights on inflation, saving, and making your money work harder. Together, we can outsmart inflation and reach our financial goals faster. Your money should be earning – not silently slipping away. Now, go make that money work for you! 🚀
