What is inflation?

Jun 6, 2023

Inflation is having a major impact on our finances. It seems like everything is going up, gas, food, etc… What’s causing these price increases?  This month we will look at inflation.  How does inflation affect us, and how to mitigate it’s impact.

So…what is inflation?

Inflation is a sustained increase in the price of goods and services over a period of time and is measured by an index such as the Consumer Price Index (CPI).  It often leads to a loss in the value of your money.  Meaning, you spend more money to buy goods today that would have cost less money a year ago. 

For example, goods you bought for $200 in March 2021, will now cost you $217.08

(CPI Inflation Calculator). 

There are two major types of inflation measurements:

1) Headline Inflation – the change in the cost of all goods and services.

2) Core Inflation – the change in the cost of goods and services, but it does not

    include changes from food and energy costs. (Corporate Finance Institute).

How does inflation affect you? 

It really depends on your circumstances, your expenses and your lifestyle. Some consumers may experience inflation differently if they have pets, several kids, own cars, etc. To know how inflation has impacted groups of consumers, we would need to look at the expenditure categories that have been affected the most by inflation.   

For example, if you purchased a used car, use lots of gas to move around and need natural gas to heat your home or cook, your cost increased over 37% over the past year. In addition, your living expenses also jumped in cost by nearly 7% according to the above chart. 

What can you do to soften the impact of inflation? 

Be cost conscious! Manage your spending and be intentional about how you are spending your money. We need to focus our spending on items that are truly needed for our survival such as food, heating our homes, transportation to get to work, etc.  It’s now more important than ever to set up a budget and stick to it.  A budget is a money plan that will help you keep track of your spending.  Also, set savings goals to build an emergency savings nest to address unexpected costs.  It all starts with a plan so start today.

Samanda Morales

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