Understanding Inflation and Its Impact on Purchasing Power

Inflation is Always Cumulative

Inflation raises prices in a cumulative process. Every year as inflation increases the prices go up by the rate based on the rate of inflation. The next year inflation is on top of the last year’s increase.
Inflation only has one cause – monetary policy.

As more dollars are printed by governments you have more dollars chasing the same amount of goods which makes the goods more expensive. Only incomes rising faster than inflation can solve the consumer’s problem.

Unfortunately, while inflation was rapidly rising between 2020 – 2024 incomes in the US lost on average approx. $4,000.00 in purchasing power. Incomes this past year have increased by around $1300.00 gaining about a third of the loss while the cumulative growth of inflation has slowed to about 2.4% – remember our Fed’s goal is maintaining inflation at 2.0%. When Trump left office inflation was at 1.4% – well below Fed Goal and life was good.