Inflation: What Is It and How Can It Hurt You?

Inflation is a word we hear thrown around quite a bit. It is probably one of the most important indicators of how the economy is doing. But what exactly is inflation and how can it impact the lives of everyday Americans?


With this article we are going to define what inflation is and 3 ways it can hurt you.


What Is Inflation?


Whenever the price of goods and services go up over a certain period of time that is known as inflation.


The rate of increase caused by inflation is usually measured by the Consumer Price Index. The Consumer Price Index tracks prices on hundreds of everyday items such as movie tickets, gas and bread.


Inflation can impact every part of your life. Here are 3 ways it can actually hurt you.


Inflation Means You Have Less Buying Power


When inflation is high your standard of living tends to decline. This is especially true when your income doesn’t increase with the rate of inflation.


To help you better understand how inflation can weaken your buying power lets look at the price of cars. In 1976 the average midsize car might cost just under $4000. Fast forward to 2015 and you would be paying $16,000 for the least expensive midsize car. That’s over a 300 percent increase.


Inflation Means You Will Have Less Money For Discretionary Spending


With gas, food and utility costs all rising as a result of inflation, the money you have left over will become smaller and smaller every month. This means you will have very little to put back for savings and very little for discretionary spending.


To compensate you may find yourself using cheaper brands or driving further to get the best bargains.


Inflation Will Complicate Your Retirement


Inflation does much more than just weaken your buying power, it can also complicate your retirement.


Inflation is a benchmark used by the federal government to determine contribution limits for certain retirement plans. Inflation is also used to determine how much you receive each month in social security benefits.


According to the LIMRA Secure Retirement Institute a one percent inflation rate could lead to retirees losing as much as $34,000 in retirement benefits.


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