A technical definition of inflation by Forbes Advisor: is when prices begin to increase and money begins to lose value or consumer purchasing power decreases. Purchasing power is the consumer’s ability to be able to buy items that have been produced by the economy. For us to define inflation in layman’s terms, we should take a quick look into the past. A gallon of milk in the 1960s was $.41 cents approx. and today it’s $4 approx which is 1250% increase in the rate. This steady increase in the price shows how money has lost value over time. Nonetheless, such an increase is quite normal according to the Federal Reserve since the standard inflation rate is around 2-3% per year in a steadily growing economy.

However, this is all changing as recently the inflation rate soared to a record high of 9.1% over the last 40 years! This spike in the inflation rate has thrown our economy and the lives of normal people into chaos as the only other time inflation was higher than this was during the Great Depression. Just some of the results of the recent economic changes have been prices going higher for gas, energy, food rents and many more daily necessities. 

If this were to continue in the same pattern it could become a destructive force for our economy and should be controlled at all costs. While it may seem nominal at first: inflation this high will IMPACT ALL types of households. For example, both the middle and poor classes will have to cut back on essentials and daily expenses, forcing them to live more frugal lifestyles. However, not all hope is lost as certain preemptive measures may help some get through the tough economic times.

To conclude today’s article I just want to leave you with a short note on how the damages of inflation can be kept to a minimum when one uses a few of the core principles of financial literacy: budgeting, saving, and investing. With budgeting, one is able to compartmentalize their expenses and this is especially important in times of high inflation as prices soar. Next, is the ability to save. Saving is a preventative measure one can take in order to have a financial cushion to fall back on when money loses its value and one needs more of it. Finally, comes investing. Investing is another way to prepare for high rates of inflation. As long as the rate of return (another article covers this) on your investments, which may include stocks, bonds or gold, is larger than the rate of inflation one will have enough money to be able to cope.