StashLearn
Get the app
Get the app

Join millions of investors on Stash

Investing, simplified

Start today with as little as $5
Get the app
Teach Me

How Is Inflation Measured and Calculated?

February 13, 2018

2 min read

Most people work extremely hard for their money and would report that they take an active interest in keeping their earnings safe, but the vast majority of them probably don’t know how inflation is measured and calculated.

But inflation can have a big impact on the value of your money, reducing its value over time.

How Is Inflation Measured and Calculated?

Before we discuss how inflation is measured and calculated, let’s briefly make sure we’re all on the same page about its definition.

Inflation refers to the rising cost of goods and services that takes place over time. In other words, inflation is the metric that measures the rising cost of living.

What Causes Inflation?

While there are many factors at play, here are two economic realities that can affect inflation.

Consumer Confidence is a big one.  Low unemployment and stable wages might convince consumers it’s safe to spend their money – even spend more of it than usual. As a result, manufacturers charge more for their products and services.

There’s also monetary policy to consider. In the United States, that’s largely controlled by the Federal Reserve. If the Fed decides to increase the supply of money, its value will drop – which also causes inflation to spike.

Calculating and Measuring Inflation

One way way to measure inflation is by referencing the Bureau of Labor Statistics’ Consumer Price Index. It’s a statistical estimate that derives inflation amounts by looking at a sample of representative products and services over time.

While there are a number of agencies that measure the change in these prices, the CPI analyzes tens of thousands of products and services every single month, making it a reliable source for the rate of inflation.

The Bureau of Labor Statistics actually provides a CPI inflation calculator, which you can use to measure how much your money is worth today compared to other dates.

For example, you’ll find that $100 nowadays can only buy about as much as $71.43 could back in 2000.

In fact, the buying power of $100 today has shrunk by about $00.90 90 cents in less than a year.

Protecting your money from inflation

There’s really not too much you can do to eliminate the effect of inflation on the money supply,and the cost of goods and services.

That said, you can still grow your money so that it stays ahead of inflation’s effects. By investing your money and leveraging compound interest, you could potentially protect it from inflation, instead of having that value depleted by losing purchasing power.

Stash allows users to get started investing with as little as $5. That’s all you need to access more than 40 ETFs in the Stash platform.

Just pick the investment strategy that’s right for your goals and Stash handles the rest. Stash Learn is also giving new investors a special $5 sign-up credit to get started by just subscribing here.

Investing, simplified

Start today with as little as $5

Get the App

By Lindsay Goldwert
Lindsay Goldwert is Senior Editor at Stash.

Next for you
Many Americans Say Not Saving and Investing Are Top Regrets

Investment Profile

Bonds Worldwide

An International Bond ETF on Stash

Learn more
Explore more articlesChoose a topic to learn more about
love and money pop culture market news Retirement social media
Disclaimers

This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

Furthermore, the information presented does not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Before investing, please carefully consider your willingness to take on risk and your financial ability to afford investment losses when deciding how much individual security exposure to have in your investment portfolio.

Past performance does not guarantee future results. There is a potential for loss as well as gain in investing. Stash does not represent in any manner that the circumstances described herein will result in any particular outcome. While the data and analysis Stash uses from third party sources is believed to be reliable, Stash does not guarantee the accuracy of such information. Nothing in this article should be considered as a solicitation or offer, or recommendation, to buy or sell any particular security or investment product or to engage in any investment strategy. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Stash does not provide personalized financial planning to investors, such as estate, tax, or retirement planning. Investment advisory services are only provided to investors who become Stash Clients pursuant to a written Advisory Agreement. For more information please visit www.stashinvest.com/disclosures.