2022 was the year inflation changed everything

• CPI peaked at 9% year over year during the summer — the highest since 1981 — and is now 7.7%.

The big picture: The Fed's aggressive rate hikes — meant to cool the economy, and thus, consumer spending — rippled through the markets and upended the way investing has worked since the financial crisis.

• Rock-bottom rates since 2008 had driven investors to take bigger and bigger risks — pushing stocks to record highs.
• Raising rates, on the other hand, was like turning the lights on at the bar at 4am. Investors looked around and thought: This all looks terrible, time to go home.
• And everyday Americans, most of whom have never experienced high inflation, lived through something that felt eerily destabilizing just as they were emerging from the COVID crisis.

The impact: Stealing the title from one of the year's big movies, rate hikes hit everything everywhere all at once.

• Real estate: In December 2021, the rate on the 30-year mortgage was at 3% — now it's more than 6%. The pandemic housing boom is a bust, companies in the sector laid off employees, and it's not clear that home prices are anywhere near the bottom.
• Stocks: The S&P 500 is down more than 20% for the year, as the higher-rate environment changed the investor calculus.
• Bonds: Typically when stocks are down, investors turn to bonds. Not this year — with rates on newly issued bonds moving higher, investors dumped older bonds. Depending on how you measure it, this sell-off led to perhaps "the worst year ever" or, at least "in decades."
• Crypto: Some touted it as a hedge against inflation. But as inflation rose and the Fed started tightening, crypto sold off just like any other risk asset, setting off a domino effect of failed crypto companies.

Zoom out: All of this had real-world implications for Americans, who've been rocked by higher energy and food prices along with their shrinking wealth.

• Consumers are blowing through their pandemic savings accounts, and credit card balances are creeping back up.
• The national vibe has soured — despite low unemployment rates. Having a job is great, but when inflation eats away at your salary, it's less fun.

The bottom line: Experiencing a period of rising prices firsthand is different from knowing theoretically about inflation, said Ulrike Malmendier, an economist at the University of California, Berkeley.

• Living through high inflation can change how you see the world, the way you think about your career, homebuying and saving — akin to living through an economic downturn.
• How it changes us will depend on how long it lasts, said Malmendier, who grew up in Germany, a country permanently changed by wild inflation after World War I, she said — much more extreme than anything we've seen this year.
• "These economic experiences scar us for years and decades to come," Malmendier said.