What Can I Do About Inflation?

             

According to the government’s Consumer Price Index, inflation is at its highest rate in 30 years. Since last year, prices have risen by 8.3%. Consumers are feeling the pinch everywhere they turn – from gas prices to groceries to electronics – which means they may have to hold off on buying certain items until things improve.

 Why is this happening now?

 Due to easing on COVID restrictions, the economy is recovering and consumer demand is surging. People are shopping more, traveling again, dining out and looking for cars and appliances. Meanwhile, the supply chain is ramping up their efforts to meet this demand, which has led to shortages in inventory.

 Are things going to get better or worse?

Experts agree that prices will normalize eventually, but not any time soon. Faced with higher prices, we all are going to have to watch what we spend, save more and research items we must purchase.

Is There Anything I Can Do About It?

 While there are many things out of our control, you can control how you save, spend and invest. Having a financial plan in place and sticking with it is solid advice in both good times and difficult ones. Part of the planning process is to ensure you’re taking advantage of higher savings rates, keeping your budget up to date and reviewing your investment plan. This process will identify ways to cut down on nonessentials, reduce debt and build up your emergency account.

Regular savings accounts offer a safe way to earn interest on your money and federally insured financial institutions protect your principal deposit against loss. And while investing does come with risk, it continues to be a proven way to build wealth over time. The average return of the S&P 500 Index over the last 30 years has had an average return of 10.7% — 8.29% adjusted for inflation1. Historically, inflation has had less of an impact on stocks and they generally hold up better than traditional savings accounts.

What About Risk?

Investing does come with risk, but there are ways to keep up with inflation that matches your risk profile. Given returns in savings accounts have not kept pace with the rate of inflation over time, it might make sense to develop an asset allocation investment strategy that can weather the ups and downs of the market.

 

  1. Source: Ibbotson Associates, U.S. Bureau of Labor Statistics.s email to an alternate website does not constitute endorsement of any product, service, or organization. SchoolsFirst FCU does not represent either you or the website operator if you enter into a transaction. Privacy and security policies may differ from those practiced by SchoolsFirst FCU, and you should review the alternate website’s policies.2. All loans subject to approval.

Extra Credit provides general information to help improve our Member’s financial lives. Every situation is different, so please contact us for guidance on your specific needs. The advice provided in Extra Credit is not intended to serve as a substitute for speaking to a loan representative, financial advisor, or GreenPath Financial Wellness counselor who can help tailor a solution for you.

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