Understanding Inflation Rates

*The United States has had a 2% inflation history for the last decade from 2012 – 2022.

*9.1% was the peak inflation rate for the United States in June 2022 (Example: $100 spends like $91).

*The current inflation rate for the United States is at 3.77%.

*Inflation is a general increase in prices & a general fall in the purchasing value of money.

*If your wage or contractor income, as well as investment income doesn’t meet or beat the rate of inflation for that year, then your dollar will lose purchasing power. Example 1: Increase in income meets increase in the rate of inflation for that year (2% increase in income or wages, & 2% increase in inflation) = no money value loss. Example 2: Increase in income or wages is below the increase in the rate of inflation for that year (1% increase in wages, but 2% increase in inflation) = loss in the value of money. Example 3: Increase in income or wages beat the rate of inflation for that year (3% increase in income [wages or investments], & only 2% increase in inflation) = increase in the value of money.

*The federal interest rate in the U.S. before Covid-19 was 1.55% in January 2020.

*The current federal interest rate in the U.S. after Covid – 19 is 5.55% for September 2023.

*Any credit accounts with variable interest rates (example: credit cards) will have increased by 4% along with the federal interest rate post Covid-19 pandemic.

**TIP: Save money in accruing interest by simply paying the same monthly amount that you would normally pay on your credit card but cut the payments in half & make them bi-weekly (preferably online for convenience & added savings [no postage]). Time is money; so even though you are paying the same amount of money each month, this will still lower your overall credit card balances faster.

Search for several other topics with helpful financial & tax information by going to my blog. Thank you.

Sincerely,

Ashley Thomas, EA