Inflation is defined as the price increase of consumer goods and services over a given time period. It is typically measured by price indexes that mark the fluctuation of the cost of either a specific or general basket of goods and services.
Each year the cost of food, drink, clothing, transportation, health care, recreation, education, and our necessary services increases or each $1 usually buys less of this basket of goods & services than it did the previous year.
The consumer price index (CPI) measures the changes in price levels of a basket of consumer goods and services. Personal consumption expenditures (PCE), most commonly used by the Federal Reserve, is similar, however, does not include food energy, allows for the substitution of goods and may provide a more accurate picture of consumer consumption.
A U.S. dollar purchased .66149% less in 2015, than it did in 2014. It stands to reason that if the $1000 that was kept in the safe since January of 2014 was worth ~$6.61 less, or $993.39 in January of 2015. The $1000 is still $1000, but it just doesn’t go as far; your purchasing power has decreased.
How might inflation influence your job selection, savings and investment choices?
How might inflation influence the rent vs. buy decision or mortgage selection?
