You’ve probably heard of inflation and the consumer price index (CPI), but do you know how these economic factors apply to you? If you don’t pay attention, especially when it comes to how your wages measure up, you may be losing ground even if you have a spending plan.
Inflation measures how quickly the costs of things you buy (goods and services) rise, which also affects the rate your purchasing power Purchasing power refers to the current amount of goods or services that your money can buy. diminishes.
Because of inflation, the same items you purchase today will cost more in the future.
Use the data from the U.S. Bureau of Labor Statistics to find how inflation has changed over time.
Consumer Price Index
The Consumer Price Index (CPI) is a measurement of the price of sample goods and services that a typical household buys. The resulting index shows the change in the price level. As an indicator of inflation in the economy, it helps government agencies in forming fiscal policy.
To understand how inflation affects your ability to meet expenses, let’s say you make $42,000 per year. The Society for Human Resource Management (SHRM) projects that 2018 salary increase budgets for companies will be approximately 3 percent (that doesn’t necessarily mean you will get that percentage as a raise; it’s just an average). Let’s look at what different increases would mean for you:
Review the above table. Can you spot the lowest percentage increase which keeps up with inflation? Click on one of the below percentage increases to see if you are correct.
Recent data reflects an inflation rate between 1.7% and 2.0%, according to the U.S. Department of Labor.
Why It Pays to Keep Up with Inflation Data
If your salary does not keep up with or exceed the inflation rate, then you are losing ground. When it comes time to negotiate your salary, bring inflation data so you can speak up for yourself with some authority
As the cost of living continues to rise, your salary will need to rise equally so that you can preserve your current lifestyle. So, how much can your present salary buy? Let’s look.
Your Buying Power
Use this CPI Inflation Calculator from the U.S. Department of Labor to estimate your buying power.
- In the first line: Enter your annual wages as of the beginning of this year.
- In the second line: Select January and the most recent year.
- In the next line: Select the month and year for which the most current data is available.
- Click Calculate.
What does this calculation tell you? It might be confusing at first, but it essentially shows what inflation has done to the value of your salary over the course of time you entered. Have some fun with this — put in last year’s information to see what it will purchase today.