Inflation Calculator: See How Much Inflation Is Costing You | Family Finance

Rising prices are touching nearly every sector of the economy as the US continues to face rising inflation, but the negative effects of this moderately high inflationary environment on consumers are uneven.

This inflation calculator helps users understand how prices are changing (2022 data is through April 30):

What Is Inflation?

Inflation is the loss of purchasing power over time as prices rise. It is often expressed as a percentage and generally refers to a trend marked by rising prices across sectors, affecting common household expenses like food and energy.

Those who rent and who spend large percentages of their income on basic necessities are often the first to feel the effects of inflation on their budgets. Rising costs associated with inflation can be obvious, whether at the pump or the grocery store, or can take the form of shadow inflation, in which the quantity or quality of goods declines even as prices remain relatively stable.

In addition to low-income households, individuals who do not own stock – about 44% of Americans – are at a particular risk.

“In a moderately inflationary environment, it’s even more important to get your money working for you in the stock market,” says Alice Finn, founder of PowerHouse Assets and author of “Smart Women Love Money.” “If you put your money in a bank account right now, you are by definition losing money. Even with bonds, they are risky right now.”

Historic Inflation Rates

Economists often rely on the consumer price index, which measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, to track historic rates of inflation.

Since the CPI’s creation, the annual percentage change in the index was a historic high of 17.8% in 1917. More recently, during a period of particularly high inflation in the 1970s and 1980s, inflation hits its annual high of 13.5% in 1980.

When evaluating inflation rates, keep in mind CPI measurements of inflation tend to slightly lag immediate economic conditions.

“The CPI index is designed to try to capture the cost of living for households. It’s never going to be a perfect measure,” says Andrew Hunter, a senior US economist at Capital Economics. “Housing is a very big part of the CPI index, a big driver of the inflation figures. It tends to, as far as the official BLS measure, is very slow moving.”

Another way to understand historic inflation trends is through the personal consumption expenditures price index, or PCE price index, which measures the change in prices for all consumption items, not just those paid out-of-pocket by consumers. The PCE can better account for substitutions between similar items when one of them becomes more expensive.

Inflation Today

The annual rate of inflation as of April, according to the CPI, is 8.3% over last year. According to the PCE, the rate of inflation is 6.6% over last year as of March 2022.

Experts attribute today’s high inflationary environment in part to mismatched supply and demand. As lockdown measures eased amid the coronavirus pandemic, demand surged – just as supply chain issues hurt the available supply to meet rising demand, causing prices to increase.

Fears around inflation can also become self-fulfilling, as consumers begin to anticipate higher prices in the future. But Andy Baxley, senior financial planner at The Planning Center in Chicago, suggests consumers focus on what they can control when trying to understand and respond to today’s inflation.

“It helps to create a Venn diagram: One circle is things that matter and the other is things you have control over. Then focus on that overlap,” Baxley says. “Just because the CPI is up 9% doesn’t mean your personal inflation rate is that high, because you have a lot of control over what you purchase and your specific basket of goods.”

Inflation by Sector

Economists highlight food, housing and energy as the three sectors experiencing the highest rates of inflation and with the greatest effect on the most consumers.

In the last 12 months, the average price of food at home rose 10.8%, according to CPI data released in May. This increase marks the largest 12-month rise since the period ending in November 1980.

Rent in the US cost about $1,904 per month, according to the Zillow Observed Rent Index, whichs the mean of listed rents that calculates that fall into the 40th to 60th percentile range for all homes and apartments in a given region. This is up from $1,609 in the US in March 2020.

While renters are particularly vulnerable to inflation, Gary Zimmerman, managing partner of Six Trees Capital in New York and founder of MaxMyInterest.com, says, “By contrast, those who own homes will likely see the nominal value of their home increase at the pace of inflation, and people who hold investments like stocks benefit from a low interest rate environment, which makes future cash flows worth even more in today’s dollars, pushing company valuations up.”

The average price of gas rose 43.6% over the last 12 months, according to the CPI.

Whether in gas, food or housing, rising prices may be attributed to a mismatch in demand and supply.

“It’s quite possible that the inflationary environment that we’re experiencing today is caused by supply shocks, not weakness in demand,” Zimmerman says. “Understanding this dynamic is important, since if prices are rising due to scant supply (due to worker shortages, backups at ports, etc.), monetary policy won’t fix the problem, but rather, it could exacerbate it.”

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