Due to inflation, consumer prices have increased dramatically over the past 12 months. People are being forced to spend more money on everyday necessities. At the same time, increasingly more people have had their budgets limited due to pay cuts, or even unemployment.

Typically, inflation is healthy for an economy. It encourages consumer spending and investing, instead of people “sitting on their cash”. More spending means more money business revenue. This revenue allows for corporate growth, creating more jobs. However, inflationary pressures during a depressed job market, is actually hurting the economy that only started to barely grow during the first half of this year.

According to the Labor Department’s Consumer Price Index, consumer prices rose .4 percent this past month. Core prices for basic necessities like food, clothing, and energy, have increased .2 percent. However, that is nothing compared to the 12-month view of the price index ending in August. Core consumer prices have increased an entire 2 percent, the biggest year-over-year increase in the past three years.

When prices rise due to inflation, consumers cut back on big expenditures. A decline in consumer demand forces businesses to scale back. This causes them to hire less and lay off more employees. In August, the economy added zero net jobs to the current market.

Currently, the number of people applying for unemployment benefits has reached the highest amount it has in three months. Applications have also increased in three out of the four past weeks, showing that this trend may only get worse.

The current national unemployment rate is 9.1 percent. It has been above 9 percent for all but two months since May of 2009. The four week average was 419,500 applications. The applications need to fall below 375,000, indicating a rise in hiring, in order to lower the unemployment rate.

To answer your question more directly, some experts don’t expect to see prices increase significantly further. This is due to the fact that businesses are not hiring or giving out big pay increases. That being said, spikes in consumer prices have cut into consumer’s disposable monthly income, limiting their spending ability. With consumers trying to cut costs everywhere they go, business revenue is being cut in turn.

If businesses can’t bring in money, more layoffs will take place, and more layoffs will mean even less consumer spending. Mark Zandi, from Moody’s Analytics, sums it up quite nicely by saying, “unless spirits improve soon, businesses will ramp up layoffs, consumers will pull back, and the economy will fall back into a recession.”

With prices potentially continuing to increase, consumers will have less money to spend on everyday items, while trying to juggle their debt loads at the same time.

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