A country’s inflation rate is a key economic factor to keep in mind. It can affect everything from people’s purchasing power to the interest rates that apply to debt. The good news is that there are ways to help manage inflation.
The US Bureau of Labor Statistics publishes the Consumer Price Index, which measures changes in prices paid by urban consumers for a basket of goods and services including food, clothing, utilities and gas. This is typically the number you see quoted in news reports about inflation. A broader measure of inflation is the Personal Consumption Expenditures (PCE) price index, which takes into account a much wider range of spending than CPI and is weighted by data obtained through business surveys.
Inflation is often considered to be bad, because it reduces the value of the money you have and thus reduces your purchasing power. However, it can also boost the profits of businesses that sell durable goods, like cars and household appliances, because they can increase their prices to cover higher raw materials costs.
Inflation can also affect investment returns, because the interest that you get from a savings account will usually not match or even come close to the rate of inflation. As such, it is important to bake in a realistic inflation rate when creating a savings plan. This way, you can make sure that the money you put away will still be worth what it is when you need to spend it again.
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