Beyond the Wallet EP 2: Inflation Breakdown

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Throughout 2021 we’ve experienced the highest growth rate of inflation in over 30 years – so in this video I’m going to explain exactly what that means, how it impacts you and I, and what to do about it.

My name is Austin Hankwitz and I talk about personal finance and investing online. I grew up in a small town in northeast Tennessee and graduated from the University of Tennessee with a degree in finance and economics.

So what is inflation? Simply put, inflation is the overall increase in prices. Inflation is going to the grocery store and seeing your weekly gallon of milk cost $4.00 compared to the $3.50 it was priced at last year. Inflation is going to the pump and seeing the price of gas increasing from $3.00 to $3.50 since January.

Right? The overall increase in prices.

So how is inflation actually calculated and what can we do about it? Inflation is calculated through something called a “consumer price index” – sounds complicated, it’s not. You can think of the consumer price index as a basket of goods and services – this includes the price of food, energy, transportation, and shelter – all the essentials.

When the price of our food, our gasoline, our bus fare, and our rent increase – so does the consumer price index. So by keeping an eye on how much the consumer price index increases allows us to better predict and understand inflation.

Haha, we’ve predicted and understood now that inflation has hit a 30-year high – what do we do about it? Well, first – know that this doesn’t happen often so don’t panic. Again, this is the highest it’s been in over 30 years. Next, think about a high yield savings account. The goal here is to have our cash earn interest over time to offset the increase in prices elsewhere. Finally, consider talking to your employer about an annual raise. Talking about your desire to “just keep up with inflation” could help your case.

Remember, highest in over 30 years – nothing to panic about. We got this.

Video Summary

Inflation has many people worried about the economy and rising costs. While inflation normally holds out at roughly 2%, inflation soared 6.2% in October 2021. This rapid growth represents the highest inflation in 31 years. 

It’s natural for people to panic when their weekly gallon of milk costs $3.50 instead of the $3 it cost a year ago. However, panicking is never the solution. We’ll outline a plan and give you a breakdown of inflation to help you make smarter decisions.

What is inflation?

Inflation is the overall increase in prices. Groceries, rent, and transportation suddenly cost more. Inflation gets measured by the consumer price index. This index is a basket of goods and services that covers food, energy, transportation, shelter, and other essentials. 

The average price increases across multiple goods and services provide an average inflation rate. Some goods and services inflated above 6.2% in October 2021, while others inflated at lower rates. However, the average economic rate of inflation was 6.2%.

Keeping up with inflation

We have entered a 31-year high for inflation. However, we likely won’t see 6.2% year-over-year inflation in the future. Countries practice several measures to prevent inflation from staying out of control for multiple years. 

The federal government projected four interest rate hikes in 2022. Higher interest rates will decrease the money supply, leading to lower inflation numbers in the future. 

As prices rise, consumers will demand salary increases to offset higher costs. Some companies quickly offer higher wages to keep up with inflation and retain top talent. Other companies will offer higher salaries to attract new employees and help them keep up with inflation. Higher wages don’t happen immediately, but they eventually arrive and help employees beat inflation. 

Increasing your salary by the CPI rate helps you keep up with inflation. If your employer does not offer a suitable raise, you can work an extra side hustle to beat inflation. Trimming your expenses by 6.2% also helps you stay in line with the CPI.

The purchasing power of your money will decrease as it remains unused. A high yield savings account helps you keep up with inflation. Earning a higher return on your capital enables you to keep up with inflation. 

Build your financial health

Focusing on your financial health during high inflation gives you greater control. Your three most reliable steps to counter inflation are the following:

Lower your expenses

Increase your income

Invest your money

Using our suggestions and tips could have you on the right path for a better financial future!

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