Will Runaway Inflation Continue in 2024?

Inflation has been a consistent problem for consumers since mid-2021. But it really came to a head in 2022.

That year, annual inflation, as measured by the Consumer Price Index (CPI), topped out at 9.1% in June. Thankfully, though, it's been receding nicely since. And as of October, the last reading as of this writing, the CPI was only measuring annual inflation at 3.2%.

It's worth noting that the Federal Reserve likes to aim for 2% as its annual inflation target. The central bank feels that this level is most conducive to long-term economic stability. And so while 3.2% is a big improvement from 9.1%, it's fair to say that inflation remains elevated.

But will things get better in 2024? Or will consumers continue to face higher living costs that make it difficult to manage their personal finances and meet their savings goals?

Interest rate hikes have helped

Before we make predictions about inflation in 2024, it's important to understand why things have improved from mid-2022. A big reason boils down to the Fed's persistent interest rate hikes.

Since early 2022, the Fed has raised interest rates 11 times in an effort to cool inflation. And those interest rate hikes serve the purpose of making borrowing more expensive for consumers.

To be clear, the Fed doesn't set consumer borrowing rates directly. Those are up to individual lenders and credit card issuers.

But an increase in the Fed's benchmark interest rate tends to trickle down to consumer interest rates, making it more expensive to sign personal loans or carry credit card balances. And when that happens, consumers tend to react by spending less. That, in turn, leads to a decrease in demand, which helps bring prices down.

Will inflation cool off completely in 2024?

There's a good chance inflation will continue to decline in 2024. But that won't necessarily happen naturally. Rather, what may happen is that the Fed essentially forces inflation closer to 2% with more interest rate hikes.

The Fed has maintained that it intends to monitor economic activity in the coming months to see if more rate hikes are necessary. If the Fed finds that inflation has seemingly gotten stuck in the lower 3% range, it may opt to give things a nudge by raising rates again in the new year.

Of course, this isn't guaranteed to happen. We may see a gradual cooling of inflation in 2024, as consumers increasingly get fed up with today's high borrowing costs.

But all told, there's no guarantee that we'll get back to 2% inflation in the new year. And you may find that certain costs, like groceries and utilities, remain frustratingly high throughout 2024.

How you can fight inflation

You can take a few steps to cope with that situation, though. First, assess your current bills and dump any that aren't necessary.

You can treat yourself to a streaming service you enjoy watching. But if you have a second one you only tune into once or twice a month, that's a service worth dumping to free up the cash.

Keeping your largest expenses on the low side could also mean getting more leeway to cope with increases in variable expenses, like food and medical bills. So if your apartment lease is coming up for renewal, for example, try negotiating a lower rent with your landlord or moving to a less-expensive home if you can do so in an affordable manner (say, by loading up your good friend's pickup truck with the minimal amount of furniture you have).

The fact that inflation isn't nearly as high as it was in mid-2022 is a good thing. But it may remain stubbornly elevated in 2024, so that's something everyone should gear up for. It's also important to gear up for potential interest rate hikes, in case the Fed decides that enough is truly enough.