If, in the year 2021, you purchased an item for $1.00 in 2023, that item would cost $1.13 with a cumulative inflation rate of 12.6%. Did your income or wages go up 12.6% during that period? The previous question illustrates the importance of understanding how inflation can affect income and purchasing power.
U.S. Inflation In June Marked The Lowest Since Early 2021
“Consumer prices climbed at their slowest annual pace since early 2021, although they ran a bit quicker during the month of June compared to May, according to a report from the U.S. government released on Wednesday, July 12.”
Inflations Long-Term Consequences
Inflation can have several long-term consequences, including reduced purchasing power which can lead to a lower quality of living, diminished value of savings, higher interest rates, lower exports, improperly allocated investments, inefficient government spending, tax increases, increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings and shortages of goods as consumers begin hoarding out of concern that prices will increase in the future.
Inflation Doesn’t Need To Have You Going In Circles
Low inflation makes it easy to overlook how rising prices affect a household's budget. On the other hand, when inflation is high, it may be tempting to make more sweeping changes in response to increasing prices. The best approach may be to reach out for help developing a sound investment strategy that considers both possible scenarios. It doesn’t need to be puzzling. Let’s put the pieces together.