Key Takeaways
  • The Bureau of Labor Statistics recently reported that the inflation rate for the past year had surpassed six percent.
  • The increase in inflation was primarily due to many new COVID relief programs created to help the economy go back to normal.
  • To protect yourself from the effects of inflation, it is essential that you invest your money and ask for a raise at your place of employment.
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A recent report released by the United States Bureau of Labor Statistics indicated that the Consumer Price Index (CPI) had increased by 0.9%. The annual inflation rate also surged to 6.2% in October 2021, the highest it has ever been since 1990. The increasing inflation is alarming as the higher the rate, the lower purchasing power the U.S dollar has when purchasing consumer goods and services, both domestically and internationally. 

 

What is the Consumer Price Index (CPI)? 

 

When the federal government or one of its establishments wishes to determine inflation over the past year, they use the Consumer Price Index. CPI is measured by determining the total price for a basket of goods in a base year, usually between 1982 to 1984. 

 

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Afterward, they determine the basket price of the same goods in the current year, telling them how much the price has increased or decreased. The two basket prices are then divided, and the outcome is the inflation rate for the current year. When this year’s CPI was calculated and compared to the previous year’s, it was determined that the CPI had risen an additional 0.9%, indicating that inflation is rising.

 

What Caused Such High Inflation?

 

Over the past year, the COVID-19 pandemic has severely impacted the economy and the stock market. At the peak of the economic downfall, 15% of the workforce was unemployed in April 2020, according to the Bureau of Labor Statistics statistics. The large volume of unemployed workers negatively affected the economy, as not enough people could spend money.

 

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Thus, the government intervened by implementing many different types of COVID relief programs. The total cost of these programs surpassed $4 trillion, and due to the high price of these programs, the U.S. Treasury Department has needed to print more currency to account for them. Furthermore, keep in mind that 40% of the U.S. dollars in circulation were printed over the past 12 months.

 

Effects of a High Inflation Rate

 

Higher inflation levels mean that all companies, big and small, will be spending more money to purchase the necessities needed to keep their business running. Consequently, this will result in the prices of their goods and services to increase, in order for them to maintain a similar percentage of profits. 

 

How to Fight Against Increasing Inflation

 

There are a couple of ways to fight inflation to prevent it from negatively affecting your life. 

 

Ask for a Raise

 

The first thing you can do is ask for a raise at your place of employment. As inflation causes the cost of expenses to increase, the amount of your current salary that can be labeled as disposable income will decrease. 

 

This decrease would be due to the cost of living rising annually. If your salary does not increase by at least six percent, your purchasing power will lower over time. Therefore, it is crucial that you ask for a raise at least once a year to ensure you retain a similar amount of money each year.

 

Invest in the Stock Market

 

The second thing to do, which is probably the most important, is to invest. Whether it’s $5 or $500 every week, every little bit helps because the stock market usually increases each year. This means that the money invested will be rising with the inflation rate, allowing you to maintain the same level of purchasing power. 

 

Furthermore, the best way to invest in the stock market is by opening a Roth IRA account. Although other types of IRA accounts can be opened when planning for retirement, a Roth IRA account is the ideal one when investing in the stock market. This is because the profits earned from investments cannot be taxed in a Roth IRA as the money invested in the account were after-tax dollars, meaning that the government cannot tax you again.

 

However, because the stock market can be unpredictable, it is essential to do your own research before investing. One example of how the stock market can be unpredictable is the global housing crisis in 2008 and the COVID-19 pandemic. 

 

These crises indicate that the stock market usually increases in the long run, but it may experience years where the market, in general, loses money. Thus, it is vital to keep this in mind when determining how much you will invest.

 

 

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A rule of thumb would be to use your income to pay off any living expenses and build up your emergency fund, which is equivalent to three to six months worth of living expenses. Afterward, whatever money is left over, keep a portion for yourself to spend on something you wish to purchase, and the rest should be invested. Never invest money that needs to be used elsewhere as it could result in times of financial difficulty.   

 

In closing, the increasing inflation rate is a concern, and if it is not dealt with appropriately by the government, it could have detrimental effects on the economy. However, by choosing to follow some of the tips listed above, you are taking steps to protect yourself from the repercussions of inflation.

 

What are some other ways that you can protect yourself from inflation? Let us know in the comments below. 

 

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