The High Cost of Inflation

If you feel like your money isn’t going as far as it used to, you are very much correct. The cause of this is due to inflation.

You might be asking yourself, “What is inflation?” and “Why doesn’t my money have the same potential as before?” Inflation in economics is a general increase in prices and a fall in money’s purchasing value. So it raises costs and lowers your purchasing power. You won’t see an impact due to inflation in a short period, but over years and decades, inflation can drastically destroy the purchasing power of your savings.

The article “How Inflation Erodes the Value of Your Money” by Forbes Advisor states that, “In 1980, for example, a movie ticket cost on average $2.89. By 2019, the average price of a movie ticket had risen to $9.16. So if you saved a $10 bill from 1980, it would buy two fewer movie tickets in 2019 than it would have nearly four decades earlier.”

The U.S. inflation rate as of October 2021 was 6.2% compared to a year earlier. That means consumer prices increased by 6.2% over a year. The inflation rate is an important economic indicator because it tells you how quickly prices change. It’s measured by the Consumer Price Index (CPI), reported by the Bureau of Labor Statistics (BLS) each month. (thebalance.com)

One of the areas taking the biggest inflation hits is energy, namely gasoline. Food and shelter, new and used cars, and medical care services have also seen a significant increase in costs to consumers. (U.S. Bureau of Labor Statistics)

Consumers should consider keeping extra cash handy to meet the added expenses that might show up in grocery or utility bills to prepare for rising inflation. However, most economists expect this inflation to be temporary. As supply comes back online and pent-up demand is satisfied, supply and demand should come back into balance. Once this happens, inflation should hypothetically decrease; however, expect higher prices in grocery stores, restaurants, and at the gas pump until that happens. (www.wsfsbank.com)