Inflation is on the rise. The consumer-price index (CPI) increased 0.5 percent this month and more than two percent on the year, saddling you with higher prices.
MarketWatch’s Maria Lamagna outlines what inflation means for your budget:
The CPI refers to the rate at which prices for certain products have increased.
Inflation is also one factor experts have said contributed to the stock market volatility in recent weeks. Investors are afraid inflation will cause the Federal Reserve to raise U.S. interest rates and shift money into bonds. Small fluctuations in prices don’t always seem “consistent with their experience,” said Mark Hamrick, a senior economic analyst at the personal-finance company Bankrate.
But people should pay attention to the CPI. Inflation refers to the price increases for a basket of products and services—including food, gas, energy, utilities, clothes, automobiles, plus transportation and medical services—and is a widely regarded economic indicator, influencing people’s confidence in the economy and their willingness to spend.
Inflation can work against your savings, said Chris Costello, a certified financial planner who co-founded the 401(k) rebalancing company blooom. Most standard bank accounts don’t have high-interest rates, and they won’t keep up with inflation, he said. “You’re effectively losing money.” Diversify your investments, especially for longer-term savings like retirement accounts, he said.
Before you can react to inflation, first keep track of how it’s impacting the cost of certain goods—from food to medical services. Then allocate your finances accordingly.