Inflation is in the news. Should you be concerned? What should you do to make sure you’re protected?

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In today’s conversation, we’ll talk about inflation, the consumer price index, and how to stay financially strong so you can build financial freedom. Join us below for the conversation!

Table of contentsWhat is Inflation?The Consumer Price IndexCPI Has Risen More than ExpectedWill the Fed Raise Interest Rates?Financial Freedom in the Face of InflationResources and Links:Book A Strategy Call

What is Inflation?

The most common belief about inflation is that businesses raise their prices to make more profit. However, it’s much more than that. Inflation is linked directly to the money supply. And when the money supply increases, prices tend to increase in proportion. 

The feeling of inflation is that your dollars do not go as far—that prices are increasing for items, without the volume rising. It feels as though your dollars are worth less. 

Investopedia defines inflation as “the decline of purchasing power of a given currency over time. ... Inflation can be contrasted with deflation, which occurs when the purchasing power of money increases and prices decline.”

If you look at the overall inflation from 1913 to now, there was an average increase of about 3% per year. While in reality some years inflated more or less, we can expect an upward trend in the future—give or take. 

The Consumer Price Index

If you’re wondering how inflation is calculated, it’s calculated through something called the Consumer Price Index. Investopedia defines this as “a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.”

What’s interesting is that not all the items you may see inflate are included in this basket of goods. So just because there is a certain inflation rate doesn’t mean that you’ll experience that increase exactly with all products. 

The way you may experience inflation is going to depend largely on your geographic location. There’s personal inflation, city inflation, state inflation, national inflation, and international inflation. That’s why your money might go farther (or not as far) when you travel to other countries. 

You can see the CPI history for yourself on the Bureau of Labor Statistics site. 

CPI Has Risen More than Expected

At the time of writing, the CPI has increased by 0.6% since March, and is up 2.6% since last year. That’s more than projected and represents the highest year-over-year gain since 2018. With inflation rates increasing, there’s considerable conversation about how that’s going to impact Americans. 

Most notably, gas prices have skyrocketed. In March, gas prices increased by 9.1%, and is up 22.5% from last year. These fluctuations have had a big influence on the CPI in an indirect way. The CPI doesn’t factor in gas or energy directly because of how volatile the prices can be. And more importantly, because gas and energy prices directly impact the prices of goods like groceries, because of what it takes to produce and transport them. 

Will the Fed Raise Interest Rates?

Despite inflation projections, the Fed has made a statement that they’re unlikely to hike interest rates in response—even with a strengthening economy. Instead, they will continue to commit $120 billion a month to bond purchases.

We see it this way—if the Fed raised rates now, and something stopped the growth we’re seeing, they wouldn’t have any “bullets in their gun.” It would be more difficult to drop the rates if needed, than to continue riding the low rates for the time being. 

Financial Freedom in the Face of Inflation

How do you create more certainty and create time and money freedom for yourself, even in the face of inflation?