How to Help Protect Yourself Against Inflation

Highlights:

• Inflation is the gradual increase in the cost of goods and services over time.
• It's critical to review your budget during inflation to see where you can save.
• Your savings are important, so make sure you're setting money aside for an emergency.

With the cost of everything going up, it is important to know how to manage these changes. Inflation can put a significant strain on your budget and wallet. While inflation is not permanent, rising costs can cause some financial anxiety. To survive during periods of inflation, you'll have to understand what inflation is and how it works.

What is inflation?

Inflation is the gradual increase in the cost of goods and services over time. As prices increase, your money may not be able to buy as much as it could in the past. Inflation may be due to several factors. Sometimes a period of sudden economic growth can cause increased inflation. Consumers start spending more money than usual. When this happens, products become more valuable and prices go up. Other times, inflation can be the result of factors outside of the economy. Natural disasters or major world events can disrupt supply chains. This reduces the amount of goods available, driving up prices on the stock that remains. It's also possible for a combination of these factors to occur at the same time or for one to occur because of another.

Inflation uses price indexes as a form of measurement, which record how prices change. The Consumer Price Index (CPI) is the most common of these. It monitors price changes for a set of 80,000 goods and services that American consumers buy. Inflation is not the same as the price increase of an individual good or service. So, if you notice the cost of a dozen eggs has gone up by 10 cents over the past month, that's not always due to inflation. But if you notice the cost of a dozen eggs, a new car and houses are all going up, it's likely that inflation rates are rising.

How does inflation affect interest rates?

Interest rates tend to go up during periods of high inflation. The Federal Reserve uses interest rates as an important tool to manage U.S. economic activity. When inflation is high, the Federal Reserve is likely to raise interest rates. This makes it more expensive and more difficult for people to borrow money. Increases in the cost of borrowing money can help slow down spending. This allows supply chains to catch up to the production of goods and services, leading to a drop in prices. When the economy is slow, the Federal Reserve may lower interest rates. This makes it easier for people and businesses to borrow money. Lower interest rates may help to stimulate the economy by reducing prices. Changes to interest rates due to high inflation often happen on a delay.

What can I do to beat inflation?

Inflation may sound scary, but with the right tools, there's no need to fear. Consider these strategies during periods of high inflation:

• Review your budget. It's critical to review your budget during inflation. Update your budget to reduce unnecessary spending and find extra money for essentials.
• Change how you spend your money. Flexibility becomes key during periods of high inflation. If the name brands of your favorite groceries are too expensive, try the store brand instead. Seek out the best deals by comparison shopping. Also aim to avoid major expenses such as a new car, a big wedding or expensive home renovations.
• Be smart with how you save. Your savings are an important buffer against rising costs. Make sure you're setting money aside for an emergency whenever you're able. Also, take full advantage of the rising interest rates that come with high inflation. Consider opening a high-yield savings account, which has a better rate of return.
• Invest where it makes sense. If you're already investing, you can continue with your current strategy. This is especially true when it comes to retirement accounts. Diversifying investments can help you spread risk across your financial portfolio. If the value of a high-risk stock takes a plunge, you'll have more stable investments to absorb some of the blow.

Equifax^® is here to help during inflation

The good news is that in most cases, inflation is temporary, and prices are likely to decrease over time. Until then, you can use these strategies to weather the storm. Equifax has a lot of resources to help you save, budget, and manage your debts.