Shrinkflation is when companies put their products in smaller containers to account for higher production costs, but the retail price sticker remains the same as before. Shrinkflation tricks us into believing that the brands we purchase are not affected by inflation, mostly because product container and vessel sizes are reduced by very small amounts individually - saving manufacturers more money in the long run. (Investopedia.com)
There are many ways in which inflation most obviously affects our day-to-day lives. Increased prices on overall costs of living (rent, food, gas, etc.) are some of the most apparent ways we are negatively impacted by inflation. One of the most subtle ways though is shrinkflation.
According to Investopedia.com, inflation is defined as "the rise in prices which can be translated as the decline of purchasing power over time". We are currently experiencing the fastest inflation increase in forty years, since 1981 with the 2022 United States inflation rate at 9.1%. (Bls.gov)
During the pandemic, households were able to save significant amounts of money while being stuck at home, giving them more purchasing power. The higher level of purchasing power skyrocketed demand which in turn increased supply shortages due to insufficient staffing, global shipping backlogs, and reduced production which were already lingering results of Covid-19.
What impact does inflation have on your student loans?
Federal Student Loans:
If you have federal student loans that you've previously taken out, inflation will have little to no impact on your current interest rates. Federal student loans have fixed interest rates, which means that they will not fluctuate or change with inflation over time. Your interest rates remain the same over the entirety of your student loan pay-off term.
If you're currently looking to take out federal student loans, interest rates have risen significantly to account for current inflation. These rates are expected to rise to 4.99% by 2023 from a previous 3.78% in recent months.
Private Student Loans:
Private student loans can have either fixed or variable interest rates. Variable interest rates fluctuate to match the state of the economy and changes in inflation. The Federal Reserve has been increasing variable interest rates on private student loans month by month.
Staying informed about the impact of inflation on your current student loans and/or loans your wishing to take out is very important as interest rates play a large role in the accrued amount you'll pay to your servicer during your pay-off term.
Regardless if you have federal or private student loans, inflation still plays a role in your payments being as affordable. Even though your monthly payments stay the same, you are spending more money on other expenses like groceries, gas, and other living expenses. This reduces the amount of money you've previously been able to save and put towards your usual student loan payments.
The good news is that there are ways to help combat the negative impact of inflation. As scary as higher interest rates may seem, the reduction of purchasing power will hopefully allow the economy to cool down, bringing supply and demand to a more neutral state. (Forbes.com)
With the Chipper app, student loan payments don't have to be as stressful, especially during difficult financial periods like inflation. Find personalized repayment and forgiveness options and avoid interest rates while using additional features like Chipper Round-Ups and Chipper Rewards.
If you're looking to follow along with experts in the field of financial literacy that offer helpful tips on saving, budgeting, and navigating inflation check out these individuals:
- Marc Russell (@betterwallet): budgeting, investing, and financial literacy coaching
- Erika Kullburg (@erikankullburg): contract negotiations, saving hacks, and hidden financial perks
- Vivian Tu (@your.richbff): housing + stock markets, building credit, avoiding unnecessary payments
Now that you better understand how inflation occurs and its overall impact, you can better equip yourself to handle unexpected fluctuations within the economy. Remember, even the smallest of positive changes and healthy financial habits make a big impact over time!