How Rising Inflation Can Affect Your Wallet | theSkimm

Inflation’s having a lazy summer. And the money bosses at the Federal Reserve aren’t happy. The latest numbers show inflation (aka how much prices for things like clothing and cars have gone up in a year) at 1.6%. For the record, some inflation can be good. The Fed says 2% is the sweet spot for a healthy economy and profitable businesses.

In July, the Fed said ‘our move’ and cut interest rates. Lower interest rates make it cheaper for people to borrow and spend more money. More spending = higher demand and higher prices. And eventually, higher inflation. Here’s what rising inflation can mean for your wallet.

Bad news for iPhones and avocado fans. Inflation doesn’t just mean ‘made in America’ stuff costs more. When the US dollar doesn’t stretch as far as it used to, imports from other countries can get more expensive. Psst...that’s a lot of stuff, like iPhone parts made in China and avocados coming from Mexico. The US imports $3 trillion worth of goods and services every year.

You have a really good reason to start investing. Inflation means any money collecting dust in a checking or savings account is worth less. So friendly reminder to start investing. Historically, the S&P 500 has gained an avg of 10% per year. Which is a LOT more than inflation will take away.

Good news for (some) homeowners. If you took out a mortgage with a fixed interest rate, higher inflation can make submitting your payment less painful. The amount doesn’t change. But if $1,000 today is worth less than it was yesterday, it feels like you’re paying less. And if your paycheck goes up at the same rate as inflation, you’ll be spending a smaller percentage each month on housing.

theSkimm: The Fed’s trying to make higher inflation a thing. That can be good for businesses and the economy overall. Probably not so much for your wallet in the short term. Over time, investing can help you beat inflation at its own game and grow your money. Do it to it.