Inflation reaches highest level in nearly four decades -- here's what rising prices mean for you

From milk at the grocery store to holiday gifts to the potential death of the infamous $1 NY slice, prices across the country are rising. This means your dollar can't buy as much as it could a few months ago -- and that's a problem. 

The Consumer Price Index, a key indicator of inflation (defined as the sustained rise in the cost of living), has increased by 6.8% since last November and is now at the highest level since 1982. The rising prices of food and fuel have made the most significant contributions toward that increase. But, even excluding those categories, inflation climbed by 4.9% last month, marking the fastest pace since 1991. This kind of sustained and increased inflation may point to something more enduring. 

In response to this, the Federal Reserve -- the government agency in charge of keeping inflation in check -- is taking action.

Federal Reserve Chairman Jerome Powell announced on Dec. 15 that the Fed will cut back on asset purchases by $30 billion in mid-January -- doubling the pace of reduction of its bond-buying program. With this new pace, the Fed expects to fully stop asset purchases by March 2022, which it previously expected to wrap up by mid-2022. 

This move would allow the Fed to increase interest rates sooner than originally planned, which will raise the costs of borrowing. In turn, this could reduce the demand in the economy -- helping to balance the supply and demand scales, one cause of inflation. But this move could also have other consequences, like rising mortgage interest rates.