What is inflation?
Inflation is a measure of the change in the cost of living. If the cost of living has increased over time, then $1 today is worth less than $1 would have been worth several years ago because $1 would buy less today in goods or services than it used to buy.
Why do I feel there is inflation that isn’t being translated into the inflation numbers?
The inflation that really matters to each one of us is the true cost of living we each experience. There is no one measure of this that applies to everyone. The change in the cost of living differs from household to household. For some of us, medical costs are a high percentage of our total spending. When medical costs are rising rapidly, inflation is high for those people. For some people, education expenses are a high percentage of their total spending. When the cost of education is rising rapidly, those people are experiencing high inflation. If housing costs are rising rapidly, the homeowner with a thirty-year fixed rate mortgage who does not intend to move any time in the foreseeable future is not experiencing inflation the same way as the renter who is seeing rent costs rise each year.
Why are people afraid of inflation?
People are afraid that if the cost of living increases too much and the value of their savings does not also increase proportionately, their savings will not leave them with as much purchasing power.
What is the positive in inflation?
Some inflation is actually a good thing because it supports economic growth. Most economists consider 2% inflation a good target that supports economic growth and maintains price stability. If the cost of living is actually failing, you have something called deflation. Deflation is not generally supportive of economic growth, so it can be just as problematic as inflation that is too high.
What is the Federal Reserve’s outlook on inflation?
The range of projections for Personal Consumption Expenditures (PCE) Inflation from the Board Members of the Federal Reserve are 1.7% to 3.0% for 2022, 1.9% to 2.4% for 2023, 2.0% to 2.3% for 2024, and 2.0% beyond 2024. These projections are as of September 2021.