According to the latest release from the Bureau of Labor Statistics, the current US inflation rate for the 12-month period ending October 2022 is 7.7%. Inflation rose 0.4% in October vs. September. The next monthly update will be released on December 13, 2022.
What is inflation?
Inflation is the rate at which the price of goods and services increases. As a result of inflation, the purchasing power (value) of money decreases over time. Inflation affects the prices of everything around us.
In general, inflation can be caused by a number of factors. The recent rise in inflation has been driven, at least in part, by supply chain issues, pent-up consumer demand, and economic stimulus from the pandemic.
" Learn more:When will inflation come down?
There are many types of inflation, characterized by a root cause or by a rate of increase:
cost increase.A common cause of inflation is when the cost of producing goods and services rises, raising prices. This can happen when raw material prices or labor costs increase.
askAnother cause of inflation is when the demand for goods and services exceeds current production and prices rise.
Deflation.The opposite of inflation: a negative inflation rate or a drop in the prices of goods and services.
Disinflation.A falling inflation rate or a slowdown in the increase in the prices of goods and services.
Reflation.A way to curb deflation when a government intentionally stimulates the economy by increasing the money supply or government spending, such as COVID stimulus payments. Reflation can also occur when a government lowers interest rates.
Crawl.Low or moderate inflation with price increases of less than 3% per year.
walk (trot).Prices are rising moderately, but the annual inflation rate remains in the single digits.
run (gallop)Prices are rising into double digits, more than 10% per year.
Hyperinflation.Extraordinary inflation out of control, more than 1,000% per year.
stagflation.High inflation even during an economic downturn.
How to measure inflation
A commonly used inflation metric is theConsumer Price Index or CPI, calculated by US Bureau of Labor Statistics. The bureau measures the CPI by monitoring the change in the average price of a variety of goods and services, which are grouped into eight groups: food, housing, clothing, medical supplies, recreation, transportation, education and communications, and other goods and services.
There are other metrics that tell us something about the history of inflation, such as the Personal Consumption Expenditure Price Index. PCE is operated by the US Bureau of Economic Analysis, which also assesses a different basket of goods and services than the CPI basket.
You may hear about inflation called headline or gist. Headline inflation measures headline inflation over a given period. Core inflation attempts to more accurately estimate inflation excluding food and energy prices, which can fluctuate wildly on a daily basis.
Historical US Inflation Rates
Looking at the CPI for the 30 years from 1989 to 2019, the average annual inflation rate was 2.5%. The Federal Open Market Committee, the arm of the US central bank that makes decisions about managing the country's money supply, targets an inflation rate of 2% over time.
The prices of different goods and services can increase by different amounts. For example, education and health care costs are generally subject to higher than average inflation rates.
According to finaid.org, a website that offers financial aid tips, tools, and information, tuition rates in the US are typically more than double the rate of general inflation and increase by about 8% on average. every year..
And according to the Centers for Medicare & Medicaid Services, national health care spending is projected to grow at an average annual rate of 5.1% between 2021 and 2030..
Why inflation matters
The effects of inflation are felt throughout the economy. As prices rise, what you can buy now becomes less over time. Being able to combat, or at least keep up with, inflation and maintain the purchasing power of your money is one of the main reasons to invest your money.
Consumers worry about inflation because it affects costs and their standard of living. Companies carefully monitor the prices of the raw materials used in their products and the wages they pay their employees. Inflation affects taxes, government spending and programs, interest rate levels, and more.
A low, stable or predictable level of inflation is considered positive for an economy. It signals growth and healthy demand for goods and services.
As companies produce more goods and services to meet demand, they need to hire more workers, which typically leads to higher job growth and wages. These workers then buy the things they need and want, and the cycle continues. However, when inflation goes too high or too low, it becomes dangerous because it is difficult to control supply and demand and economic growth.
This brings us to the importance of investing. Although you will receive interest from the bank on your savings account, the interest rate you receive will generally not match or come close to the rate of inflation. That's why it makes sense to invest your money when you can afford it and increase the value of that money over time. This will allow you to buy the same amount of goods and services in the future.
When creating a plan to meet your financial goals, it's important to consider a realistic inflation rate for future expenses so you save enough to meet your needs.
How to protect yourself from inflation
Avoid hoarding cash
To make sure your money doesn't lose too much value, it's important to invest and not have too much cash, Tony Molina, Wealthfront's senior product specialist, said in an email interview.
"The impulse to hold on to as much cash as possible is understandable, and it can be comforting to accumulate more in difficult situations as a buffer against unexpected events," he said.
However, inflation means that your money is likely to buy less over time. Molina suggests investing money he doesn't plan to use in the next three to five years to avoid losing purchasing power.
" Starting: How to invest your savings for short or long-term goals
Diversify your portfolio
Another way to prepare for inflation is to have a well-diversified investment portfolio.diversification, when you diversify your investments across asset classes (stocks, bonds, cash, real assets, etc.), different industries and countries, you help increase investment returns and reduce risk, e.g. B. by inflation to reduce.
There are certain assets that are more tolerant of inflation than others, or rise with inflation, Eric Leve, a chartered financial analyst and chief investment officer at Bailard, a San Francisco-based wealth management firm, said in an email.
Leve recommends including some of these natural inflation hedges in your overall portfolio to fend off inflationary times, such as:
property.assets such asOroo Properties that retain value or offer pricing power help resist inflation. For example, landlords sometimes raise rents when inflation rises.
Stocks.Especially stocks with proven earnings growth and low debt levels. Interest rates tend to rise with inflation, causing businesses with high levels of debt to face higher payments.
Inflation-linked Treasuries.In times of inflation, rising interest rates have a negative impact on traditional bonds because bond prices and interest rates are inversely related.POINTSthey are a type of bonds directly indexed to the CPI, designed to help investors maintain purchasing power;atoThey are another option linked to inflation.
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Ask for help
Making sure your investments are set up to protect against inflation is important, and there are many factors to consider. Get a second opinion from aFinancial AdvisorIt can be helpful to make sure you're on the right track and have your portfolio ready to weather all the seasons of different economic environments.
US Inflation Rate Seen Falling to 6.2%
The annual inflation rate in the US likely slowed to 6.2% in January, the lowest since October, and compared to 6.5% in December. Core inflation, which excludes volatile food and energy, is expected to have eased to 5.4% from 5.7%, also the lowest since the end of 2021.
The annual inflation rate for the United States is 6.4% for the 12 months ended January 2023 after rising 6.5% previously, according to U.S. Labor Department data published Feb. 14. The next inflation update is scheduled for release on March 14 at 8:30 a.m. ET.What causes inflation Nerdwallet? ›
A common cause of inflation is when the costs of producing goods and services increase and push prices higher. This can happen when prices of raw materials or labor costs rise.What is inflation why should it concern you? ›
Inflation is a measure of how fast prices of goods and services are rising. If inflation is occurring, leading to higher prices for basic necessities such as food, it can have a negative impact on the overall economy.What is the main cause of inflation in the U.S. right now? ›
1. The Covid-19 pandemic. The pandemic caused a classic case of demand-pull inflation. A few factors can cause demand-pull inflation; however, in this case, it is mainly caused by household spending.What is the true cause of the current inflation? ›
At its root, inflation is driven by too much demand relative to supply.Who benefits from inflation? ›
Inflation benefits those with fixed-rate, low-interest mortgages and some stock investors. Individuals and families on a fixed income, holding variable interest rate debt are hurt the most by inflation.Is inflation really cooling? ›
Inflation is cooling, but prices on many items are going to stay high for months. Slowing inflation hasn't brought relief for consumers yet because prices are still well above where they were a year ago.How inflation affects the economy? ›
In an inflationary environment, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. Inflation can also distort purchasing power over time for recipients and payers of fixed interest rates.What is the biggest cause of inflation? ›
Inflation is an increase in the prices of goods and services over time due to an imbalance between demand and supply. Increased costs including wages, government policies, and devaluation of the dollar all play a role in inflation.
- 1 - Create a budget. ...
- 2 - Talk to your advisor, or find one today. ...
- 3 - Buy used, or borrow. ...
- 4 - Cook at home. ...
- 6 - Tidy up your insurance products. ...
- 7 - Travel during off-peak times. ...
- 8 - Barter and trade. ...
- 9 - Look at how often you drive.
- increased government spending.
- increased money supply.
- increase in production costs.
- increase in aggregate demand.
- workers bargaining for higher nominal wages.
What Causes Inflation? There are three main causes of inflation: demand-pull inflation, cost-push inflation, and built-in inflation. Demand-pull inflation refers to situations where there are not enough products or services being produced to keep up with demand, causing their prices to increase.What is inflation explained for dummies? ›
What is inflation? In the simplest possible terms, inflation is what happens when prices go up and therefore the purchasing power of money goes down. A dollar is worth fundamentally less if, overall, goods and services increase in price.What will happen if inflation keeps rising? ›
Erodes Purchasing Power
An overall rise in prices over time reduces the purchasing power of consumers, since a fixed amount of money will afford progressively less consumption. Consumers lose purchasing power whether inflation is running at 2% or at 4%; they just lose it twice as fast at the higher rate.
inflation will fall as quickly and dramatically as it rose. We've seen it happen before.” In other words, prices could drop all of a sudden. Blinder also adds that raising interest rates won't be the end-all solution to lowering inflation.What is causing inflation 2023? ›
The U.S. economy is currently experiencing levels of inflation that have not been seen in 40 years. Supply chain disruptions, rising global commodity and energy prices, volatility in major economies and underlying demographic factors have all contributed to rising prices.Which city has the highest inflation rate in the US Why? ›
1. Phoenix, Arizona. At 12.1%, the Phoenix metro area (Phoenix, Mesa, Scottsdale) takes top prize for the highest inflation rate.Why inflation is bad for American consumers? ›
The most obvious impact of inflation is that it hurts your purchasing power. If you can't buy as many goods and services as you did before inflation, your quality of living will eventually diminish.Will inflation cause a house price crash? ›
If inflation causes mortgage rates to increase too much, buyers will not be able to apply for loans and therefore demand will decrease. When this happens, house prices will decrease. In recent years, inflation and demand have caused the average property value to increase greatly.
Inflation is soaring in countries around the world – but not in Japan. Government price controls, an ageing population and negative interest rates are among the factors keeping down inflation in Japan. Another reason is that Japan reopened its economy more slowly than many countries following the pandemic.What are the worst investments during inflation? ›
The worst investment to put money into, during periods of inflation, are long-term, fixed-rate interest-bearing investments. These can include any interest-bearing debt securities that pay fixed rates, but especially those with maturities of 10 years or longer.Does inflation hurt the rich? ›
This happens because inflation hurts the lower incomes but actually enriches the higher incomes. Imagine a family making $30,000 with no assets seeing a 5 percent annual inflation rate. They see their expense rise by 5 percent (losing $1,800 in buying power due to the inflation) and have no way of making it up.Does inflation eat your money? ›
Any time your savings don't grow at the same rate as inflation, you will effectively lose money. If you are a retired adult living on your savings, you can't keep up the same standard of living if inflation cuts into your purchasing power with every passing year.Who does inflation really hurt? ›
While inflation is rising everywhere, price hikes are particularly devastating to lower-income households with already tight budgets. Nearly all their expenses go to necessities — food, energy, housing — which have seen some of the largest increases at different points over the past year.What are pros and cons of inflation? ›
Inflation is a net positive when it is moderate because it spurs wage growth and investment. High inflation is unsustainable and causes investors to hold onto money as opposed to spending. Low inflation, or worse, deflation, is disastrous for an economy because products are no longer profitable to produce.Is government spending causing inflation? ›
As a result, the demand for money will rise to where it was before the government increased spending, thereby offsetting any inflation that occurred initially. So, government spending doesn't affect the demand for money either, at least not in the long run.Will food prices go down in 2023? ›
Food prices are expected to grow more slowly in 2023 than in 2022 but still at above historical average rates. In 2023, all food prices are predicted to increase 7.9 percent, with a prediction interval of 5.5 to 10.3 percent.Is it good to buy a house during inflation? ›
If you buy now, your money might have more buying power. As inflation continues to rise your money buys less. If you act now, then, you might be able to afford more home with your dollars than you would if you wait and inflation continues to rise. During inflationary times, monthly apartment rents tend to rise, too.Where should I keep my money during inflation? ›
The best option for keeping up your personal finances when inflation rises is to keep a percentage of your money in long-term investments as part of a diversified portfolio. Retirement accounts, for example, are commonly used as a way to grow your money slowly over time and keep up with the natural rise of inflation.
Common anti-inflation assets include gold, commodities, various real estate investments, and TIPS. Many people have looked to gold as an "alternative currency," particularly in countries where the native currency is losing value.Why is the price of everything going up? ›
Increased inventory shortages mean slower deliveries. This leads to supply and demand challenges, where there is less supply of the goods people want (and need) coupled with their increasing demand, putting upward pressure on higher priced goods.Will inflation go down in 2023? ›
According to the IMF, global inflation is expected to fall from 8.8 percent in 2022 to 6.6 percent in 2023, but it will still remain above the pre-pandemic levels of 3.5 percent.How to avoid inflation? ›
- Save first. To most people, savings is the surplus of income after expenses. ...
- Create a feasible budget. Getting a pay increase is an ideal time to reassess your financial goals and aims. ...
- Reward yourself—sparingly. ...
- Don't try to keep up with the Joneses.
With profit margins that actually expand as rates climb, entities like banks, insurance companies, brokerage firms, and money managers generally benefit from higher interest rates.What is the projected inflation rate for 2023? ›
The slowing economy is likely to bring the yearly inflation rate down to roughly 3.5%-4.0% by the end of 2023. However, this will still be higher than the Federal Reserve's target of 2.0%-2.5%.Should I pay off debt during inflation? ›
As long as inflation continues to run high, you shouldn't be paying off any extra debt. Instead, use the extra money to invest so you have more buying power in the future.What is the CPI expectations for January 2023? ›
CPI January 2023 is 6.4%, core inflation rose.What is the USD inflation rate by year? ›
U.S. inflation rate for 2020 was 1.23%, a 0.58% decline from 2019. U.S. inflation rate for 2019 was 1.81%, a 0.63% decline from 2018. U.S. inflation rate for 2018 was 2.44%, a 0.31% increase from 2017.Will US inflation go down in 2023? ›
Inflation turned higher to start 2023, as rising shelter, gas and fuel prices took their toll on consumers, the Labor Department reported Tuesday.
$10,000 in 2010 has the same "purchasing power" or "buying power" as $13,719.87 in 2023.How high could interest rates go in 2023? ›
In its fiscal forecast, published in November 2022, the OBR predicted that the Bank Rate would rise from 1.6% in Quarter 3 2022 to 4.8% in Quarter 3 2023 and 4.5% in Quarter 3 2024.Should I pay down my mortgage in high inflation? ›
As rates rise, choosing to make additional payments reduces the balance you owe on your mortgage. In turn, you'll save money on interest and pay off your mortgage faster. Making extra payments now can also help you adjust to a future of higher mortgage payments.Should you pay down mortgage when inflation is high? ›
Sarah Coles, personal finance expert from Hargreaves Lansdown, says: 'At a time of high inflation, if you pay down your mortgage then the higher rate of interest you are being charged will be applied to smaller amount of mortgage debt, which makes it more affordable.Is it better to have cash or debt in a recession? ›
Should I pay off debt or save? Prioritizing paying off high-interest debt with extra cash has long been standard advice from financial gurus. The reasoning behind this makes sense — you'll ultimately save more by paying down high-interest debt, reducing the total interest you pay in the long-run.What is the expected inflation rate for the next 5 years US? ›
US Expected Change in Inflation Rates: Next 5 Years is at 2.90%, compared to 2.90% last month and 3.00% last year. This is lower than the long term average of 3.20%.What will inflation be in 2024? ›
Global inflation will fall in 2023 and 2024 amid subpar economic growth. Global growth is projected to fall from an estimated 3.4 percent in 2022 to 2.9 percent in 2023, then rise to 3.1 percent in 2024.Is the CPI a good measure of inflation? ›
The "best" measure of inflation depends on the intended use of the data. The CPI is generally the best measure for adjusting payments to consumers when the intent is to allow consumers to purchase at today's prices, a market basket of goods and services equivalent to one that they could purchase in an earlier period.