Consumer Prices Rise: Navigating Inflation in the US
Inflation is a popular conversation these days as we have seen a gallon of gas rise from sub $2 levels to above $3 in some areas of the state (AAA). Lumber prices have also been a hot topic as some COVID-19 home projects had to be put on hold due to lumber prices doubling in just a year (CNBC). But what is inflation and how is it measured?
The Basics of Inflation
Inflation can be defined in two ways, depending on which side of the coin you look at. Inflation is most thought of as the increase in the price of goods over a period of time. It can also be referred to as the decline in purchasing power of a specific currency.
When prices rise, your dollar does not buy as many goods. This is because the dollar is weakening against the cost of goods. If the dollar weakens, the price of goods increases. If the dollar strengthens, the price of goods decreases. These events happen simultaneously, and one does not cause the other.
Average Inflation Rates in the US
The average rate of inflation in the US is between 2-3% annually. This is calculated by measuring the change in the Consumer Price Index. CPI is a measurement of price for an average American basket of goods. This “basket of goods” is derived by spending habits of the American consumer and includes items such as food, apparel, housing, medical care, education, transportation, etc.
Measuring Inflation Through the Consumer Price Index (CPI)
Every month, the cost of these goods is examined by the government, and the change in CPI results in the recorded monthly inflation. While average inflation ranges from 2-3% annually, this number can be skewed for certain expenses. Medical care and education costs have some of the highest inflation historically.
US Inflation Rate – Summarized
- Inflation is the increase in the price of goods over a period of time
- Inflation is also referred to as the decline in purchasing power of a specific currency
- The average US inflation rate is between 2-3% annually
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Best Regards,
Zachary A. Bachner, CFP®
with contributions from Robert Wink, Kenneth Wink, and James Wink
Sources:
Zach Bachner
After graduating from Central Michigan University in 2017 with specialized degrees in Finance and Personal Financial Planning, Zachary “Zach” Bachner set himself apart by earning the CFP® designation and passing the Series 7, 63, 65 licensing exams early in his career. Zach gained valuable real-world experience with the team at Summit Financial Consulting, who treated him like family. Their guidance helped him refine his skills in practical, client-centered planning, where putting their needs first was non-negotiable. This focus on trust-building not only allowed him to cultivate strong relationships, but also allowed him to continue doing what he loves most: solving client problems through efficient financial planning strategies. Leveraging his experience, Zach now helps others navigate finances through clear, informative writing. His work has been published in major outlets like Yahoo Finance, MarketWatch, and Investment Business Daily, establishing him as a valued resource. By simplifying complex topics, Zach aims to empower everyday people to confidently pursue their financial goals