Inflation hikes the cost of living, making it more difficult to make ends meet with the money on hand. Learn how to manage your debt despite inflation.
Key Points:
Inflation is a financial fact of life, but what is it, exactly?
Here’s a simple definition: Inflation represents the gradual or sudden loss of purchasing power accompanied by increasing product and service prices.
Inflation is a function of the Consumer Price Index (CPI), which uses a mathematical formula to capture price increases.
Consumer prices tend to increase in direct proportion to the available money supply if the other variables impacting prices, such as the velocity of money (the rate at which consumers and businesses collectively spend money) and the real output of the economy (GDP), remain constant.
The ongoing global pandemic has upended economies world-over, and the US economy is no exception. Economic output dwindled, and the economy would have ground to a halt had the government not injected more money into it.
As the US money supply expands at never-before-seen rates, inflation is likely to increase as well. The only way to temper that trend is to decrease the velocity of money while increasing the GDP.
Although the Fed has already taken some steps to address the issue of inflation, the full effects of the massive money supply increases are still surfacing.
So, it is hardly surprising that inflation rates have shot up during the first half of the year.
(Source: US Bureau of Labor Statistics)
The Fed has also raised its expectations for inflation considerably. In May 2021, the annual inflation rate reached 5%, outpacing all previous months, hitting the highest level of the last decade, according to inflationdata.com.
What does soaring inflation mean for you?
How does inflation relate to debt? Does it help or hurt debtors?
There are two basic scenarios in which inflation may help borrowers.
Inflation and debt can also hurt you, whether you’re already indebted or will become indebted as a result of inflation.
Inflation can increase the already steep cost of debt.
If you are already in debt, Inflation can hurt you in more ways than it can help you. Since all signs point to increasing inflation in the coming months (and perhaps years), it makes sense to address your debt now rather than waiting any longer.
Credit card debt is the most expensive form of debt, and inflation makes it even more damaging to your financial status. Take action today. Contact a ClearOne Certified Debt specialist at 866-481-1597 to discuss the credit card debt relief options available to you and get a free savings estimate.
The data and statistics referenced come from multiple credible resources that are cited throughout. ClearOne makes no representations or warranties regarding the accuracy of the information from these various resources and are providing the content for informational purposes only.
Topics: Financial Education
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