The inflation rate measures the price increase of goods and services year-over-year. Inflation occurs when prices rise due to external factors impacting the economy. When demand increases, so will inflation, as consumers are more apt to pay higher costs for goods and services.
Several factors can impact inflation. The current inflation hike is fueled mainly by supply chain issues, high consumer demand from the COVID-19 pandemic, stimulus payments, and global tensions.
Rising inflation decreases the power of your money. For example, if you had $5 in 1950, you may use it to buy ten gallons of gasoline. However, in 2022, that same $5 may only allow you to buy one gallon of gas. Thus, the power of your money decreases over time due to inflation.
However, not all inflation is bad. Many economists state that a sustainable rate of inflation is suitable for maintaining a healthy economy.
When you think about retirement, an inflation increase can encourage you to invest your money earlier to grow your retirement portfolio at a higher rate in the future. Therefore, investing early can produce a more significant return on your initial investment.