What is Inflation and How Does it Impact You?

August 8, 2023

Inflation has been higher post-pandemic than it’s been in decades. Understanding what inflation is and how it impacts you can help you make better overall financial decisions.

Have you noticed lately that your money isn’t going as far as it used to?

If so, it’s probably not because you’re changing your spending habits; it’s because you’re experiencing the impacts of inflation—an economic phenomenon in which the costs of goods and services increase over time.

In this Chambers Bank article, you will learn what inflation is, why it’s risen in the U.S. recently, and what you can do to stretch your dollars further and safeguard your budget.

How Does Inflation Work?

Inflation happens when the prices of goods and services increase over time, causing a decrease in purchasing power. In other words, with inflation, you can’t buy as much with your money as you could in the past. And for many people, this reality affects their standard of living.

Here are a few examples of how inflation has changed U.S. prices over time:

In 1973, a gallon of regular gas cost 40 cents, a first-class stamp was 8 cents, and the price of a new car averaged $3,200.

Today, a gallon of regular gas is around $3.50, a first-class stamp is 66 cents, and a new car will cost you about $48,000.

How Is Inflation Measured?

The U.S. Bureau of Labor Statistics (BLS) uses the Consumer Price Index (CPI) to measure the rate of inflation. It is shown as a percentage and is calculated each month after spending data is gathered on goods and services.

An inflation rate of 2% is generally considered normal and acceptable in the U.S. economy, but when the rate goes above that number, measures may be taken to lower it due to the potential economic impacts on consumers and businesses.

In June 2022, inflation was up 9.1% year over year—the largest 12-month increase in 40 years. Since then, inflation has been trending downward, and as of June 2023—it was up just 3.0% year over year.

What Causes Inflation?

While there are many reasons inflation happens, it’s often due to imbalances in supply and demand. In recent years, some economists say inflation has come from a combination of factors including consumer demand, supply chain issues, and economic stimulus from the pandemic.

To handle current inflation issues, the Federal Reserve (the nation’s central bank) has been raising interest rates since March 2022–with the goal of decreasing consumer demand. As a result of these rate increases, it costs you more to borrow money right now, whether you need a mortgage, a car, or money for repair work.

How Can I Protect My Finances From Inflation?

There’s no one-size-fits-all solution to fighting inflation, but here are some ways you can make more dollars available and assure you stay financially sound: 

Review and Revise Your Budget

You have likely seen increases in the cost of groceries and other home essentials lately, but have you noticed spikes in other spending categories like cell phone service and streaming services?

If you’re not sure where your costs have gone up (but you’re feeling it), now is a good time to review your budget and look for ways you can cut back on expenses. Some people have revised their budgets successfully by switching service providers, negotiating lower prices, or eliminating services entirely.

For more information on building and managing your personal budget, see this Chambers blog post. In addition, consider using our Personal Finance tool to help you monitor your budget and your savings.

Pay Down Your High-Interest Debt

Because inflation leaves less money available to cover expenses, it makes sense to work on paying off high-interest debts first and then using the newly available cash to grow your savings or ease up your budget.

The avalanche method and the snowball method are both popular ways to pay down debt, but debt consolidation is another option too; ask us about a Chambers Consumer Loan if you’re considering debt consolidation.

Another option to think about (if you have a good credit standing) is moving your high-interest credit card balances to a new credit card with a zero-interest or low-interest introductory offer. We have several credit card choices at Chambers Bank that offer low introductory rates for the first six months of card use. If you can pay your transferred balance off within this time period, you may save a considerable amount on interest payments.

Continue Adding to Savings

Even if you can’t set much money aside, be sure to build and maintain an emergency fund; this will help you and your family in the event of a job loss, injury, or illness. It’s simple to automate savings by setting up a recurring transfer directly from your Chambers Checking Account or external account to your Chambers Savings Account.

Besides savings account products, our Certificates of Deposit (CD) and Individual Retirement Accounts (IRAs) are ways you can earn higher interest on your money—with minimal risk.

Looking for one more way to increase savings?

Sign up for our Savings Cents Program! Once you enroll, we automatically round up your Chambers Bank debit card purchases to the nearest dollar and then transfer the round-up amount to your Chambers Savings Account on the next business day.

To enroll, simply complete an Automatic Transfer Form to authorize the Savings Cents program. Ask for one at any branch location or contact us to have the form sent to you.

Increase Your Income

You know what they say: When the going gets tough, the tough get going. Are there jobs you can apply for that pay better or can you get promoted? When was the last time you asked for a raise? The thing is … U.S. wages and salaries were up 5.7% at the end of the second quarter of 2023 from a year prior, so if you haven’t received a raise recently, now is the time to ask.

What about working overtime, taking on a second job, or creating an at-home side hustle? Any of these can help offset rising costs and give you opportunities to gain additional skills and credentials.

While none of us can control the economic environment we’re in, we can control how we spend our money and how we manage our savings.

If you have specific questions about our banking products or would like to speak to an advisor about your finances, please contact our Customer Care Center at 1-800-603-1226 to schedule an appointment or send us a message here.

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