The US inflation rate is a popular conversation as we have seen a gallon of gas rise from sub $2 levels to above $3 in some areas of the state. Lumber prices have also been a hot topic as COVID-19 caused a delay in some home projects due to lumber prices doubling in just a year. Our following several blogs are part of a series: Personal Financial Planning 101. Join us as we begin the series by discussing how inflation is measured.


The Basics of Inflation 

Inflation can be defined in two ways depending on which side of the coin you examine. First, the increase in the price of goods over time is considered inflation. While also, the decline in purchasing power of a specific currency is considered inflation.

When prices rise, your dollar does not buy as many goods. This is due to the dollar weakening against the cost of goods. If the dollar weakens, the price of goods increases. Conversely, when the dollar strengthens, the price of goods decreases. These events happen simultaneously, and one does not cause the other.


How Inflation Works Infographic


How the US Inflation Rate is Calculated

The average US inflation rate is between 2-3% annually. This number is calculated by measuring the change in the Consumer Price Index. CPI measures the price for an average American basket of goods. The “basket of goods” is derived from the spending habits of the American consumer and includes items such as food, apparel, housing, medical care, education, transportation, etc.

Every month, the government’s cost is examined by the government, and the change in CPI results in the recorded monthly inflation. While average inflation ranges from 2-3% annually, this number gets skewed for certain expenses. For example, historically, medical care and education costs have some of the highest inflation. 


US Inflation Rate – Summarized

  • Inflation is the increase in the price of goods over some time
  • Inflation is referred to as the decline in purchasing power of a specific currency
  • The US annual inflation rate is between 2-3% 


Want to Learn More?

If you have any questions about taxes, your investment portfolio, our 401(k)-recommendation service, or anything else, please get in touch with us or call our office at (586) 226-2100. 

Please feel free to forward this commentary to a friend, family member, or co-worker. Also, if you have changed your income, job, family, health insurance, risk tolerance, or overall financial situation, please call us to discuss it. 

We hope you learned something today. If you have any feedback or suggestions, we would love to hear them. 

Best Regards, 

Zachary A. Bachner, CFP®

with contributions from Robert Wink, Kenneth Wink, and James Wink

After graduating from Central Michigan University in 2017 with specialized degrees in Finance and Personal Financial Planning, Zachary Bachner set himself apart by earning the CFP® designation. Zachary now writes articles aimed at helping everyday people understand complex financial topics. He focuses on explaining financial planning concepts and strategies in clear, simple terms.