Inflation & Your Money
“If the current annual inflation rate is only 1.4 percent,1 why do my bills seem like they’re 10 percent higher than last year?”
Many of us ask ourselves that question, and it illustrates the importance of understanding how inflation is reported and how it can affect investments.
What Is Inflation?
How Applicable Is the CPI?
Are Investments Affected by Inflation?
They sure are. As inflation rises and falls, three notable effects are observed.
Second, inflation puts purchasing power at risk. When prices rise, a fixed amount of money has the power to purchase fewer and fewer goods.
Third, inflation can influence the actions of the Federal Reserve. If the Fed wants to control inflation, it has various methods for reducing the amount of money in circulation. Hypothetically, a smaller supply of money would lead to less spending, which may lead to lower prices and lower inflation.
Empower Yourself with a Trusted Professional
When inflation is low, it’s easy to overlook how rising prices are affecting a household 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 to your financial professional to help you develop a sound investment strategy that takes both possible scenarios into account.
1. InflationData.com, 2021
2. Bureau of Labor Statistics, 2021
3. InflationData.com, 2021
4. This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments. Past performance does not guarantee future results.
The content is developed from sources believed to be providing accurate information.The information in the material in not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professional for specific information regarding your individual situation. The opinions expressed and material provided are for general information, should not be considered a solicitation for the purchase or sale of any security.
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